Full text of Mid-Continent Banker : The Financial Magazine of the Mississippi Valley and Southwest : October 1986, Volume 82, No. 10

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MID-CONTINENT

BANKER
OCTOBER, 198 . ¡jg ■ g i

FEATURES

ATM Sales Picture
Reopening a Failed Bank
Avoiding Personal Liability
Ag Banking Faces Transition

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□

OUR TOP SALES LEADERS
...AND SPECIAL THANKS
TO YOU-OUR CUSTOMERSWHO MADE IT
HAPPEN FOR THEM!

Norm Ahles
President’s Advisory Council
Wisconsin Rapids, WI

Jim Fink
President’s Advisory Council
Wauwatosa, WI

Bob Gordon
President’s Advisory Council
Billings, MT

North Central Life is proud to publicly recognize
members of its top sales club: The “1986 PRESIDENT’S
ADVISORY COUNCIL”. Members earn qualification in
the club by achieving high standards of performance in
new account production for the company

They are our elite.
They are our best.
They deserve our public commendation. And thanks for
a job well done.

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Russ Eng
Co-Salesman o f the-Year
Sioux Falls, SD

Steve Wolsky
Co-Salesman of-the-Year
Valley City, ND

Denny Zea
Co-Salesman of-the-Year
Sioux Falls, SD

John Mrozek
President’s Advisory Council
Rockford, MN

Dave Stormoen
President’s Advisory Council
Alexandria, MN

Tom Walsh
President’s Advisory Council
Chippewa Falls, WI

They’re the ones who made this recognition possible for
our sales leaders. We thank them for the trust they
bestowed upon us. And the opportunity they have given
us to serve them and their loan customers.
We salute you all.

“Am erica’s Num ber One Credit Insurance Service Organization”

Protection all ways

North Central Life Insurance Com pany
NORTH CENTRAL LIFE TOWER 445 MINNESOTA STREET BOX 64139 ST PAUL. MN 55164

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MID-AMERICA’S BANKING PUBLICATIO N
|% 1 I I I I I I I A
K f 1C M ID -CO N T IN EN T
L J n i i i u i i w

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B A N K ER

i v i l

October, 1986

Late-Breaking News From the World of Banking
TAX-REFORM LEGISLATION WILL HAVE A POSITIVE EFFECT OVER THE LONG TERM, but
will be mixed for the near-term, says Robert J. DeBenedet of Marquette
Capital Management Corp., a subsidiary of Marquette Bank Minneapolis.
Results will be a "mixed bag" for consumers, with increased consumption by
lower-income individuals and less dependence on tax considerations for
investments by higher-income individuals.
Corporations that will benefit
most are those that have historically paid high marginal tax rates, Mr.
DeBenedet says.
Losers will be those that have made substantial use of
depreciation and investment-tax credits to reduce tax liabilities.
Real
estate will be especially hard hit.
Stock-market volatility will increase
and interest rates will lower over time. Investors will seek income rather
than capital appreciation, according to Mr. DeBenedet.
NEW-POWERS LEGISLATION FOR BANKS IS OVERDUE, said the ABA’s Donald Ogilvie
late last month when speaking to directors of Mercantile Bancorp., St.
Louis.
The U. S. hasn’t critically reviewed its banking laws in half a
century, Mr. Ogilvie said, yet competition has continued to intensify.
Banks are facing increased taxes and other costs of doing business but
current law limits the kinds of products and services they can offer and the
ways they can structure their businesses. Banks can help get laws changed
over the long term by adopting codes of ethics, undergoing outside audits,
sharing more information with directors, stepping up efforts to educate
consumers and fully disclosing aspects of bank services, according to Mr.
Ogilvie, who is ABA executive vice president.
REGULATORS CLEARED OF GRAMM-RUDMAN CUTS BY HOUSE.
As this issue went to
press, the House passed a bill exempting most federal regulators from
spending cuts mandated by the Gramm-Rudman deficit-reduction law.
The
agencies were exempted because their fees come from financial institutions
and thus don’t affect the federal budget. The Senate hadn’t considered the
bill at press time.
CONGRESS CAN PREVENT "SLOW EROSION" OF BANKS’ ROLE IN FINANCIAL SERVICES,
ABA President Donald T. Senterfitt said in recent testimony on Capitol Hill.
Should product/service restrictions on banks remain, he said, an increasing
number of banking functions will be performed by nonbanks, which will
"undermine the ability of banking laws and regulations to protect the
stability of the financial system." The ABA favors HR 5220 as a "prescrip-

MID-CONTINENT BANKER’S

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tion for a sound legal framework by which banking organizations can catch up to
the financial marketplace," Mr. Senterfitt said. The bill would authorize banks
to offer securities, insurance and real-estate products/services currently
prohibited.
Products include mutual funds, insurance brokerage and real-estate
brokerage.
NOT ONLY BANKS, BUT BANKERS, ARE CROSSING STATE LINES.
Samuel B. Hayes III has
left Bank of Oklahoma, Tulsa, where he was president/chief operating officer, to
become president/CEO at Boatmen's National, St. Louis. James R. Bullard has left
Hawkeye Bancorp., Des Moines, la., to join Hutchinson (Kan.) National as executive
vice president/director. He was vice president/counsel to credit administration
at Hawkeye.
FAILURE TO HEED CONSUMER COMPLAINTS COULD PROVDE COSTLY TO BANKS if they don't
take voluntary action to defuse them, says Borod & Huggins, bank consulting firm.
Among the most pressing complaints are failure to inform customers about new
rules/procedures concerning new products, failure to reduce charge-card rates,
lengthening delays in clearing checks against newly established accounts,
increases in service charges and far-ranging spreads of average balances required
for free checking.
Banks' failure to address these situations is prompting
consumers to question banks' commitments to consumers, according to Borod &
Huggins.
CHIEF EXECUTIVES APPOINTED AT MID-CONTINENT BANKS.
John C. Dean has succeeded
James G. Cairns Jr. as chairman/president/CEO, First Interstate, Oklahoma City
(formerly First National, Oklahoma City).
Mr. Dean formerly was president/CEO,
First Interstate Systems, Inc., Los Angeles. Mr. Cairns, current ABA chairman,
has joined the Financial Institutions Group within the Hailwood Group as
president...Steven G. Elliott has been appointed executive vice president/chief
financial officer at First Commerce Corp., New Orleans.
He formerly was with
Crocker National, San Francisco...Robert E. McNeilly Jr. has been elected
president/CEO, First American National, Nashville. He retains his chairman title
and succeeds Andrew G. Higgins, new president/chief operating officer, First
American Corp....Josh C. Cox Jr. has been elected president/CEO/director at First
Guaranty Bank, Hammond, La. He formerly was with a bank in West Virginia...W. E.
Ayres now is president/CEO of Simmons First National Bank and Simmons First
National Corp., Pine Bluff, Ark....William A. Crumrine Jr. has added the title of
CEO to that of president at Texas American Bank/Amarillo...Owen G. "Bob" Shell has
been elected president/CEO, Commerce Union Bank, Nashville.
TEXAS INDEPENDENTS REVERSE STAND ON BRANCHING INITIATIVE. An ad hoc group of the
Independent Bankers Association of Texas (IBAT) has convinced the IBAT's board to
withdraw support for a countywide branching proposal that will appear on the
ballot in Texas next month.
The IBAT board voted to withhold any resources for
the campaign when it learned that nearly 50% of the association's members oppose
the initiative.

Volume 82, No. 10

MID-CONTINENT BANKER
(ISSN 0026-296X)

Editorial/Advertising offices: 408 Olive St., St.
Louis, MO 63102; 314/421-5445.
is published monthly by
Commerce Publishing C o., 408 Olive St., St.
Louis, MO 63102.
M i d -C o n t in e n t B a n k e r

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October, 1986

63102.
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Second-class postage paid at St. Louis, M o., and at
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MID-CONTINENT BANKER for O ctober, 1 9 8 6

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MID-CONTINENT BANKER for October, 1 9 8 6

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M id -C o n tin en t B anker
S ta ff
Wesley H. Clark
Publisher
John L. Cleveland
Associate Publisher/Editor
Lawrence W. Colbert
Vice President/Advertising
Jim Fabian
Senior Editor
Joe Lawler
Assistant Editor
Marge Bottiaux
Advertising Production Manager
Nancy Gilbreath
Staff Assistant
Linda Brumitt
Circulation Manager

October, 1986/Volume 82, No. 10

In This Issue
FEATURES

Making a Clear Statement
What your facility says about your bank’s market approach can
obfuscate or illuminate the image you wish to cultivate

Case Study:
Solving the image problems of buying and reopening a failed bank

ATMs
Some new placements, but mostly replacements

Avoiding Personal Liability
It’s vital for bank survival

C o m m erce Publishing Co.
O ffic ers
Donald H. Clark
Chairman Emeritus
Wesley H. Clark
Chairman/CEO
James T. Poor
President/Chief Operating Officer
David A. Baetz
Executive Vice President
Bernard A. Beggan
Senior Vice President/Secretary

DEPARTMENTS
33

Marketing
What do consumers want?

Legislation/Regulation
Banking-legislation politics

Operations
Telecommunications marketing formula

Management
Bank earnings optimism

Agriculture
Ag banking faces transition

Lawrence W. Colbert
Vice President/Treasurer
William M. Humberg
Vice President
Larry Albright
Vice President

C o m m e rce P u b lic a tio n s
American Agent & Broker
Club Management
Decor
Life Insurance Selling
Mid-Continent Banker
The Bank Board Letter
Financial Buyers Guide

E d ito rial/A d v ertis in g
O ffic es
408 Olive St.
St. Louis, MO 63102
314/421-5445

The Banking Scene
Getting rid of bad apples

Lending
Preparing for the exam

New Products/Services

Reader Response Page

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MEMBER

bpa

MID-CONTINENT BANKER for O ctober, 1 9 8 6

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Chairman, James Baker & Company

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A LEADING SOURCE FOR FRESH IDEAS.
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The emphasis on knowing your overall position enables
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mendations aimed at increasing your earnings.
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(405) 842-1400
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And Then There Were None
ernment’s two-handed policy toward banking and recent
AST month, Central Bank, Tulsa, earned the dubious
shocks to the economic system will combine to make the
distinction of becoming the nation’s 100th official
bank failure in 1986. By year’s end, another 60 banks could pessimistic predictions about the future of full-service
banking come true.
suffer similar fates.
For the truth is that banking has been only partially
Nearly 10% of the nation’s banks now are on the prob
deregulated and the remnants of the past are helping to
lem list and almost every day another joins their belea
kill those institutions that deserve to be called banks. Reg
guered ranks. The percentage growth in nonperforming
ulators long ago decided there is something special about
bank loans in the first quarter of 1986 kept pace with the
banks, and despite their instincts that the time has come
growth in gross lending, but still rose by an estimated $2.6
to cut the apron strings, they continue to make banking
billion and, in agriculture- and energy-dependent states,
a special case. If banks’ new competitors were accorded
the nonperforming loan problem grew appreciably worse.
the same loving attention, banks would be in no worse
In Oklahoma, for example, nearly 7% of gross loans are
shape than their competitors.
considered nonperforming (versus 6% at the end of 1985),
so it should come as no surprise that Oklahoma alone
accounts for nearly a third of all bank failures this year,
ut banks are hemmed in by archaic laws that limit
including one of the largest on record, First National,
the types of businesses they can enter and the prices
Oklahoma City.
they can charge. The banking industry had to mount a
strong lobbying effort recently to defeat a proposed cap
on credit-card interest rates and, under pressure from
consumer lobbying groups, accepted a Federal Reserve
s this the attrition that advocates of banking-industry
policy encouraging banks to adopt voluntary efforts to meet
deregulation predicted years ago? Poor lending prac
tices coupled with severe economic downturns in certain the needs of low-income consumers.
A policy requesting voluntary compliance is a better
regions of the country have helped to exacerbate the fi
bargain than new legislation, but why isn’t someone in
nancial problems banks are experiencing, but deregulation
government worried about forcing Neiman-Marcus to sen e
has been a contributing factor. You’ll recall that deregu
the needs of low-income consumers? Of course, the an
lation was supposed to make financial markets more effi
swer is that banks have a position of public trust and
cient by driving some inefficient producers out of business
responsibility akin to those of a utility. So maybe banks
or at least into mergers with institutions more capable of
are special and there’s something about them that ought
surviving in a fantastically more competitive market. Con
to be preserved.
sumers would benefit in the form of lower prices and a
We have no doubt that if every full-service bank dis
wider array of financial services.
appeared tomorrow, consumer financial needs still would
There’s no question that consumers have a wider array
be met by the growing army of limited-service providers.
of financial options today, but at a considerable price:
But would these limited-service institutions match the
increased confusion about which products to buy and
standards of integrity and occupy the same role in the
greater risk. A case could be made that consumers are
economy and in their communities that banks have?
benefitting from lower prices. Loan interest rates have
No one we know has provided a satisfactory answer to
dropped dramatically; even credit-card rates are under
that question. Before the number of failed and failing banks
intense downward pressure. But deregulation hardly can
climbs much higher, however, it might be wise to have
be fully credited with that development. Banks also are
that answer. Perhaps some attrition is desirable among
charging for services they once offered free and are paying
full-service banks, but just how far do we want to let that
lower rates to attract new deposits. As far as most con
process go?
sumers are concerned, financial-industry deregulation thus
far has been a mixed bag.

s long as a bank charter continues to be a competitive
liability rather than an asset, the process will con
f course, proponents of deregulation argue that the
tinue to work toward its logical conclusion, which is some
full benefits of deregulation have yet to accrue to
thing no one seems to want. Government has two choices:
consumers. In other words, “we ain’t seen nuthin’ yet!”
It must either allow banks the same competitive freedom
If that’s the case, we have to wonder what the bank
afforded competitors or make banking’s competitors meet
failure rate will be once deregulation runs its course. Per
the same regulatory standards banks do. No amount of
haps banks will adjust to their new environment and the
delay will make that decision any simpler or easier.
failure rate will stabilize. Being optimists, we tend to think
— John L. C levelan d
that will be the case, but we have to admit there are times
Editor/Associate Publisher
when we despair that the cumulative effects of the gov

O
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MID-CONTINENT BANKER for O ctober, 1 9 8 6

Rapid transit.
Speed. It’s the essential ingredient of intelligent
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By 9:00, we’re on the phone
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&e?ceTofntBanker©Commerce Bank
MEMBER FDIC

No one knows the value of
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MID-CONTINENT BANKER for October, 1 9 8 6

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01 K a n sa s City

(816) 234-2000 • 10th & Walnut • Kansas City, MO 64141

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HMHHl

Making a Clear
Statem ent
What your facility and signs say about
your bank’s market approach can
obfuscate or illuminate the image you
wish to cultivate

By John L. Cleveland
Editor/Associate Publisher

OW DO your customers perceive your bank?
If your bank is typical, your loyal customers prob
ably think of your bank as friendly, safe, prosperous, grow
ing — and perhaps not indistinguishable from any other
bank.
These days, it’s no longer enough to be typical, how
ever. Banks have to differentiate themselves from their
competition, not only from the limited-service newcomers
to the financial-services field but from the bank down the
street.
The analogy has been made that banking is coming to
resemble the retail market, where, not coincidentally, some
of banking s more formidable new competition had its start.
In the financial-services market of the future, the reason
ing goes, only the largest players will be able to be all
things to all people in all markets. Everyone else will be
a niche player to some degree.

Blending in while standing out is a tricky balancing act
that Citizens Banking Co. building in Sandusky, 0., man
ages to make look easy. — Photo courtesy of HBE Corp.
hand, is a far less transparent enterprise. Bank facilities
are every bit as varied in style and location as retail outlets
but form does not always follow market function and there’s
no visible merchandise to provide clues.
If you re going to make a statement with your facility,
nothing succeeds — or, in some cases, exceeds — like
making it big and bold for all to see. Tony Harbour, man
aging principal of Gensler & Associates, Houston, an ar
chitectural firm with a great deal of experience in banking,
says that an impressive or distinctive architectural style
still can convey a bank’s desire to dominate or become a
major player in a given market.
For example, I m looking out my window now across
the street at (Dallas-based) RepublicBank s Houston main
bank which formerly was located on the second floor of a
nondescript office building,” he says. “You could have
driven by and never known a bank was there. With their
new facility, RepublicBank wanted to convey the strength
of the bank and the fact that they were a major presence
in the community and they chose a very distinct and prom
inent architectural style that did just that.”

ot every bank can afford to dominate the local skyline
and market, however, so a more subtle statement
may be appropriate. In fact, at many desirable locations,
t follows, then, that if your bank is going to be constrained
integration with the surrounding environment may be the
to serving a demographic or geographic market niche,
key to standing out from the competition.
you want to choose a location, an architectural style and
Sometimes the best locations aren’t in shopping cen
an interior decor that says something about the role you’ve
ters but in residential areas,” says Thomas Spalding, mar
chosen for your bank. First appearances still are important
keting director, Bank Building Corp., St. Louis. “You may
in attracting and retaining customers and many customers
be able to find a location on a corner somewhere that you
form that first impression from the appearance of the fa
can place a facility that enhances and fits into the sur
cility in which the bank is housed.
rounding neighborhood. Rather than sticking out like a
In many ways, retailers have a far easier task in differ
sore thumb, you become a friend to the neighborhood.”
entiating themselves from their competitors than banks
do. Walk into almost any type of store and you’ll quickly
aintaining a sense of being a part of the local com
be able to tell what the retailer’s primary market orien
munity may be one of the most effective marketing
tation is. It might be convenience, discount versus hightactics available to community banks these days. Despite
end merchandise, senior citizens, yuppies, business peo
the alleged fickleness of today’s financial-services con
ple, college students, residents from the local neighbor
sumer, most people want to have their financial needs met
hood or people whose occupations or inclinations keep
close to home and deal with people they believe have a
them out and about late at night.
stake in the community. A banking facility that seems to
Whatever the retailer’s primary market thrust may be,
say to local residents — assuming that’s your target market
it is reflected in the location of the store, the interior decor
We re a part of you, will generally draw more busi
and the selection of merchandise. Banking, on the other
ness than one apparently designed to fit anywhere or that

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A 12,500-square-foot simulation of a
branch bank in Michigan demon
strates how banks can differentiate
themselves from competitors while
retaining the capability to adopt a dif
ferent market strategy in the future.
— Photo courtesy of Herman Miller,
Inc.
desire to take along some of the am
biance from the past. The new facility
was built in a French colonial style
with Queen Anne and Georgian fur
niture throughout the interior.
clashes with its surroundings.
Tom Lombardo, director of mar
keting, H BE Corp., St. Louis, cites as
an example the three-story Citizens
Banking Co. building in Sandusky, O.,
where the challenge was to create a
new facility that blends in with nearby
buildings dating from the 1920s. D e
signing a building that manages to both
blend in yet stand out isn’t easy, but

In Business
For Business
B yL isa Hoogerwerf
Financial Shares Corp., Chicago

HE MILLIONS of dollars spent
annually by financial institu
tions on advertising and public
lations demonstrates management’s
recognition that a good name and
solid reputation are among their
bank’s or banking group’s most vital
assets.
Many contend that although pro
motional m aterials may create
awareness of new products or serv
ices as well as reinforcing credibil
ity, word-of-mouth advertising from
satisfied customers is what really
translates into strong, bottom-line
results. This is particularly true of
institutions that cater to a specific
target market.
With small-to-medium size pri
vately held businesses as its pri
mary market, the $645-million-asset Affiliated Banc Group, Inc.,
Chicago, is a good example of a
multi-bank holding company that
has successfully carved out a niche
for itself in the commercial market.
Affiliated offers an array of products
in the lending, m oney-m anage
ment and trust-service area while
continually maintaining contact with
its customers through seminars and

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Federal Reserve Bank of St. Louis

it is one way to make a subtle but im
portant architectural statement, he
says.
Architectural design also can say
something about a financial institu
tion’s roots in the community, accord
ing to Mr. Lombardo. When a New
Orleans thrift relocated from the
French Market section of the city to
an area of rapid growth, there was a

newsletters. All products and serv
ices reinforce Affiliated’s underly
ing theme: “W e’re in business for
business.”
The Affiliated Group, which cur
rently is comprised of five member
banks in the Chicago area, began
cooperative efforts to attract small
business customers about 25 years
ago while still maintaining legally
reseparate HCs. In 1983, the group
developed a marketing program that
recognized all banks as members of
the Affiliated Banc Group. When
Illinois passed its multi-bank HC
law in 1984, Affiliated took the next
step of consolidating HCs.
The final step in the consolida
tion process currently is underway.
All member banks are changing
their names to reflect their involve
ment in the Affiliated Group. This
step was taken only after a brief
questionnaire mailed to individual
bank customers indicated that cus
tomer acceptance would not be a
problem.
The name changes include: Af
filiated Banks in Franklin Park,
Morton Grove, North Shore and
Cicero. First Security Bank of Ad
dison, acquired by the HC last No
vember, already had been renamed
Affiliated Bank/DuPage.
The group’s advertising cam
paign highlights the addition of the
HC s name to the individual bank
names while emphasizing that the
size of the combined banking group

ank Building Corp. recently com
pleted a bank facility in Indiana
with an exterior hitching rail for the
bank’s primarily Amish customers who
travel to the bank in horse-drawn bug
gies. When your market is clearly de
fined, it’s easy to incorporate design
and functional elements that help make
your clientele feel more comfortable
doing business with you.
Some banks have attempted to de-

creates resources for customers that
would not otherwise exist. The va
riety of resources has helped the
group to cross-sell products and
services while maintaining a local
identity in each community served.
With its combined resources, Af
filiated also has been able to spon
sor informative seminars for cus
tomers on such topics as the benefits
of micro-computers or the effects of
the proposed tax-reform bill on
small businesses. Two Affiliatedproduced quarterly new sletters,
Financial Forum and Business In
sights, address topics of interest to
small businesses and are sent to
commercial customers along with
letters from the president of the lo
cal Affiliated bank.
A new Business Development
Group, headed by a sales director
and staffed by 12 full-time persons,
calls on new businesses much the
way Affiliated’s commercial loan of
ficers do. It also participates in local
trade shows and community activ
ities. By emphasizing its commit
ment to the business customer in
every phase of its operation, Affil
iated Banc Group has made itself
special in the eyes of the key cus
tomers it wishes to serve.
When people consider you to be
something special, they talk about
you and all of that word-of-mouth
advertising eventually shows up
where it counts — on the bottom
line.

MID-CONTINENT BANKER for O ctober, 1 9 8 6
Circle 9 on Reader Response Card

—»

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Federal Reserve Bank of St. Louis

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Federal Reserve Bank of St. Louis

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Federal Reserve Bank of St. Louis

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NAME

TITLE

NAME OF BANK
ADDRESS
STATE
ZIP CODE

Bank Facilities

PHONE NO.

Circle 16 on Reader Response Card

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Federal Reserve Bank of St. Louis

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Circle 23 on Reader Response Card

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lineate less clearly defined segments
of the general populace as their pri
mary market, however, and it’s not al
ways so easy to create an environment
that appeals to one market segment
without turning off another. In recent
years, for example, a number of banks
vigorously have pursued upscale cus
tomers, in some cases offering special
entranceways and sit-down counseling
areas with more plush surroundings
than the average customer sees. Perks
for VIP customers have proved suc
cessful in other markets besides fi
nance, but some banks have mistak
enly designed their facilities for upscale
clients as if all high-balance customers
fit the same mold.

services industry will uncover in the
future? In fact, changes in the types
of products banks legally can offer that
are in consumer demand may dictate
sudden changes in market strategy. In
today’s financial marketplace, it’s wise
to stay flexible and not make architec
tural statements you can’t inexpen
sively retract or expand on as condi
tions warrant.
Last spring, Herman Miller, Inc., a
Michigan office-fixture-and-furniture
firm, opened a 12,500-square-foot ex
hibit it calls the Great Lakes Bank &
Trust, which incorporates modulardesign elements in customer and backoffice areas that can be expanded or
contracted as needs dictate. Through
August, more than 150 banks had sent
representatives to tour the exhibit,

the expense of having to knock out
walls or putting in new permanent
marble tile.”
Modular fixtures permit a bank to
be inexpensively reconfigured over a
weekend, says Mrs. Leese. Extensive
use of dark mahoghany, rich fabrics
and marble ensures that banks won’t
sacrifice the plush environment their
customers may expect.
s banks shift their product mix for
maximum competitive advan
tage, management may have to create
a separate section of the lobby for in
surance sales, another for real estate
and yet another for securities. Some
new product innovations will be dis
mal failures; others will generate more
income and require more space than

ather than plush carpet and
paneled walls, a truck driver,
whose income combined with that of
a working spouse can be substantial,
may prefer to bank in a less preten
tious setting, for example. Of course,
the major problem with upscale cus
tomers is that there just aren’t enough
of them to go around. Most banks will
find it necessary to serve a mixture of
high-balance and less well-to-do cus
tomers. A facility that makes both
groups feel com fortable should be
management’s paramount objective in
such cases.
The elderly represent another de
mographic group that banks have sin
gled out for special attention. Some
banks have set aside areas where el
derly customers can get coffee and visit
with friends during their visits. Others
make available meeting rooms to sen
ior citizens’ groups or sponsor semi
A hitching rail was incorporated into the design for this Odon, Ind., bank.
nars on topics of interest to senior cit
Many of the bank’s customers are Amish farmers who drive horses and
izens.
buggies to town to do their banking. — Photo courtesy of Bank Building
W hether senior citizens or leftCorp.
handed Mongolian hairdressers are
your primary target m arket, cus which is authentic even down to the originally planned.
tomers’ needs should dictate facility
In this chaotic environment, banks
rubber stamps placed at work stations.
design. If a facility is going to be used
“Bankers tell us the exhibit is so real may be able to differentiate them
for evening meetings by senior citi they would feel comfortable rolling up selves by the manner in which they
zens, for example, easy, after-hours
their sleeves and going to work there, ’’ keep customer confusion to a mini
access to a m ulti-purpose m eeting
says Judy Leese, market manager, fi mum. Signs that direct customers to
room should be considered an impor nancial institutions.
the appropriate section of the bank are
tant part of the design, says Mr. Lom
only a partial solution, says Mr. Spald
riginally, Herman M iller had ing. A reception area in a prominent
bardo.
planned to close the exhibit this place in the lobby staffed by someone
Young people are less awed by tech
summer, but now plans to keep it open
nology and will adapt to ATMs and
whose full-time function is to assist
until the end of the year. Popularity customers and help them get to where
other gadgets more quickly than will
of the exhibit is evidence that de they need to be can be a tremendous
older customers. Business customers
regulation has created a need for asset, he says.
generally don’t like long waits. Guar
anty Bank in Mt. Pleasant, Tex., pro greater flexibility in bank design, says
Many bankers consider a reception
Mrs. Leese.
vided a separate parking lot and drivearea a non-income-producing luxury
up facility for its com m ercial cus
“For the first time, it’s starting to they’d just as soon avoid. Often, there’s
tom ers, a convenience many local
make sense to be able to reduce or no clear indication of who has been
business people found so helpful, they
expand the number of teller lines or designated the bank’s information
shifted all their banking relationships
add areas for new products as market source and it sometimes turns out to
there, says Mr. Spalding.
conditions change,” she says. “In a be a clerical worker for whom an in
Who can say what innovations in
deregulated financial market, time is quisitive customer is an infringement
market segm entation the financial(Continued)
of the essence and you may not want in a busy day.

MID-CONTINENT BANKER for October, 1 9 8 6

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Federal Reserve Bank of St. Louis

“In some banks, you have to go all
the way back into what feels like the
inner sanctum before you find some
one who can answer a simple question
like, ‘Where do I go to find the officer
who handles such and such?
A pleasant receptionist who can di

rect the customer to the appropriate
location and make him/her aware of
other services the bank offers may be
all it takes to bind that customer to the
bank for life. All the best marketing
theories and plans may go out the win
dow if the customer doesn’t feel com

fortable and welcome the first time he/
she walks in the bank.
For all of the changes in banking
brought about by deregulation, the
medium still is the message, even if
your media are architecture and in
terior decor. • •

Adopting A Retail Strategy
By Jim Fabian
Senior Editor

URING the heyday of bank premiums, when
banking floors were dotted with displays of
cookware, dinnerware and crystal, many bankers
plored the “retail-store” atmosphere of their insti
tutions.
Little did these bankers realize they were seeing
a preview of things to come!
Not that displays of kitchen utensils will be the
norm in banks — those days seem to be gone forever.
But the retail angle is refusing to die. It’s the focal
point of “new thinking’ about bank survival in to
day’s environment.
“Retailing is vital for survival of the banking in
dustry,” says Mark Gibson, vice president, Retail
Planning Associates, Inc., Columbus, O. Mr. Gibson
is a chronicler of innovation in banks and his firm is
a consultant to Bank One Corp., widely regarded as
one of the nation’s most innovative financial insti
tutions.
Formerly with Battelle-Columbus, a midwestern
think tank, Mr. Gibson is convinced that financial
institutions are not on the right track when it comes
to effective selling of products/services.
“There’s a vital link missing in their sales efforts, ”
he claims, and its the fact that customers are not
getting information about products/services before
being asked to purchase them. There’s a need, he
continues, for customers to be “pre-sold” before they
sign up for a service.
To remedy this situation, Mr. Gibson recom
mends that banks adopt a retail attitude when de
signing their facilities. For instance, they should pro
vide visual presentations featuring services that
customers are likely to be considering, such as IRAs
during “IRA season,” which is just before incometax filing time.
Bank floor plans should be arranged to guide cus
tomers through the institution, with visuals at vital
spots to introduce them to services. How many times
have bankers walked past exhibitors’ booths at bank
ing conventions to get to the registration desk? The
concept is similar to what Mr. Gibson has in mind.
The entrance to the bank and the teller area are
the most effective positions for visuals hawking serv
ices, Mr. Gibson says. Visuals near the entrance
should be general in nature, but those nearest the
teller area should be specific. Visuals should be en
tertaining and attractive as well as providing infor
mation about a bank service, he continues.
He admits that its a challenge to make intangibles,

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Federal Reserve Bank of St. Louis

such as bank services, tangible to customers. But it
can be done through a subliminal approach that sug
gests how desirable a product/service can be. Cus
tomers find it easy to grasp visuals, Mr. Gibson says.
Bank One is in the forefront of this approach, says
deGary Kaiser, an associate of Mr. Gibson, who is vice
president/design director for Retail Planning Asso
ciates.
“This bank is creating an environment that will
sell services,” he says. It’s using what could be termed
a “boutique” arrangement, one that surrounds the
banking floor with specialty shops offering related
services that may not be legal for banks to offer on
their own.
This concept isn’t brand new — as witness Sears
financial centers — but it’s one that most banks
haven’t embraced. Bank One is on the leading edge,
Mr. Kaiser says, and his firm is designing a “financial
center” for Bank One that can best be described as
something between a department store and Epcot
Center. Messrs. Kaiser and Gibson won’t comment
further on this project, as specifies are proprietary
information at this time.
“We re trying to change banking’s conservative
appearance,” Mr. Kaiser says, “so the business op
eration can be expanded.” He adds that contem
porary decor is the trend of today, a fact that is
underscored by the appearance of the newer malls.
Bank One’s Upper Arlington Branch, which has
been the showcase of the bank’s innovative efforts,
is about as “mod” as any commercial bank in the
nation. Its doorway features an arched canopy that
makes the bank look like a tony retail shop on Rodeo
Drive in Beverly Hills. The facility features “bou
tiques” housing tax preparers, financial consultants
and attorneys. A travel agency and brokerage service
also are on the premises.
What about results? Deposits have risen more than
15% since the branch was opened last November,
the travel agency averages 50 customers a week and
“dozens’ of customers have been retained because
of brokerage-service availability, according to John
F. Fisher, senior vice president.
Other banks climbing on the retail bandwagon
include Huntington National, Columbus, which is
incorporating a Sears-like marketing strategy that
uses retail display and marketing techniques to di
rect products/services at customers needing them.
This approach is an attempt to turn the 95% of cus
tomers using the bank for traditional services into
customers taking on extra services — in other words,
to make buyers out of them each time they enter
the bank to make a deposit or cash a check.

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Douglas Austin & Associates provides unmatched
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Hancock Bank
& Trust

Trenton Bank
& Trust Company

Anthony Wayne
Bank

Greenfield, Indiana

Trenton, Michigan

Ft. Wayne. Indiana
has announced its intention to merge with

has announced its intention to affiliate with

Security
Bancorp, Inc.

Summit Bank
Ft. Wayne. Indiana
Douglas Austin & Associates. Inc. acted
as an investment banker and financial
advisor to Anthony Wayne Bank
in this transaction.

Southgate, Michigan
Douglas Austin & Associates, Inc. acted
as an investment banker and financial
advisor to Trenton Bank & Trust
Company in this transaction.

has affiliated with

Merchants National
Corporation
Indianapolis, Indiana

Douglas Austin & Associates, Inc. acted
as an investment banker and financial
advisor to Hancock Bank & Trust
in this transaction.

Clinton State Bank
Clinton, Indiana

Spartan
Bancorp, Inc.

has anounced its intention to affiliate with

has announced its intention to affiliate with

Banc One
Corporation

Old National
Bancorp

Columbus, Ohio

Evansville, Indiana
Douglas Austin & Associates, Inc.
issued a fairness opinion on behalf of
Clinton State Bank in this transaction.

Douglas Austin & Associates, Inc. issued
a fairness opinion on behalf of Spartan
Bancorp, Inc. in this transaction.

Sutton
Bancshares, Inc.

The Lorain
County Bank

Shelby County
Bancorp

(a local investor group)
Attica, Ohio
has acquired

Elyria, Ohio

purchased the Columbia Station
Branch of

Thrift Federal
Savings & Loan Co.

The Sutton State Bank
formerly an affiliate of
C’entran Corporation
Cleveland, Ohio

Cleveland, Ohio
Douglas Austin & Associates, Inc. acted
as a financial advisor to The Lorain
County Bank in this transaction.

Shelbyville, Illinois
has announced its intention to acquire

Windsor State Bank
Windsor, Illinois

Douglas Austin & Associates, Inc. acted as
the investment banker to Sutton Bancshares, Inc. in this leveraged
buyout transaction.

Douglas Austin & Associates, Inc. acted
as a financial advisor to Shelby County
Bancorp in forming a one-bank holding
company and in the subsequent
acquisition of Windsor State Bank.

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opportunities. Call Mid-America’s Investment Banking Specialist. .

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MID-CONTINENT BANKER for October, 1 9 8 6

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Federal Reserve Bank of St. Louis

419/841-8521

Springfield

Circle 3 on Reader Response Card

Case Study
Solving the image problems
of buying and reopening a failed bank
By Thomas G. Ramey and M. Scott Lawyer
ON DAY, A pril 7, 1 98 6
4:07 p.rn., Alexandria, La. The call comes. Henry Kinberger, president, Security First National Bank of Alex
andria and a former president of the Louisiana Bankers
Association, receives a telephone call from the FD IC : A
$40-million bank in a northern Louisiana market will be
closed this Thursday. We would like to give Security First
National the opportunity to bid.”
4:35 p.m. Mr. Kinberger calls M. Scott Lawyer, presi
dent, Lawyer & Associates, Inc., Jackson, Miss., a firm
which specializes in the acquisition of problem banks.
Messers. Kinberger and Lawyer speculate that the in
stitution is First National, Ruston. Both agree that this
college town located between Monroe and Shreveport
would be an ideal market for Security First National to
enter. Mr. Kinberger decides that he will, indeed, be a
bidder. He retains the Lawyer organization to represent
his bank.

5:10 p.m. Mr. Lawyer, a former regional counsel of the
FD IC , calls a meeting of his staff, which includes former
bank presidents, bank auditors and attorneys. Among those
gathered in the conference room is Thomas Ramey, pres
ident, Ramey & Associates, an organization specializing
in bank marketing.
Mr. Lawyer outlines the scenario to his assembled team.
Each member of the team knows what his individual mis
sion will be for the coming week.

Tu esd ay, A pril 8, 1 9 8 6
Mr. Kinberger presides over a meeting of his board of
directors, where he announces the F D IC ’s invitation to
bid on what he believes to be FNB Ruston; the enlistment
of Lawyer & Associates; and the need for extreme secrecy.
Lawyer & Associates begins peer-group analyses of banks
of this size operating in the region and begins preparing
the array of documentation needed in the acquisition of a
failed institution.

W ed n esd ay, A pril 9, 1 9 8 6
Teams from Lawyer & Associates and Security First
National fly to New Orleans, the F D IC ’s designated office
to receive bids.
Mr. Ramey is president, Ramey & Associates, and Mr. Lawyer
is president, Lawyer & Associates, both in Jackson, Miss.

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Federal Reserve Bank of St. Louis

Bid packages are circulated to interested parties. About
20 institutions appear to be potential bidders.

6 p.m., New Orleans. The Security First National team
assembles in a working suite at the hotel headquarters
with all bidding materials and other data necessary for the
decision.
The team considers such questions as whether the bank
should be a newly chartered institution under the existing
holding company, or be operated as a branch of Security
First National in Ruston.
Financing of the new bank is discussed.
Meanwhile, Messers. Kinberger and Ramey huddle to
discuss the initial marketing of the new institution. Mr.
Ramey argues for heavy initial advertising to reassure the
people of Ruston that their money is safe and that all
banking services will be continued.
The FD IC plans to close the bank Thursday. If Security
First National is the winning bidder, the bank will reopen
as a branch of Security First National Friday morning.
“All precautions must be taken to avoid any type of run
on the new bank early Friday morning. As the newspaper
will not be out until Friday afternoon, our only option is
immediate heavy radio advertising, Mr. Ramey says. Mr.
Kinberger concurs.
8:30 p.m. Mr. Ramey phones his staff, on standby in
Jackson, and relays the information necessary for them to
begin producing the newspaper and radio advertisements.
He outlines the budget agreed on by him and Mr. Kin
berger.
Later, Mr. Kinberger, Mr. Lawyer and their staffs work
into the night preparing the necessary applications for the
OCC and develop dozens of scenarios to determine pay
back periods under various bids.
Thursday, A pril 10, 1 9 8 6
8 a.m., New Orleans. While the bid team prepares the
agenda for a 16-hour day, Mr. Ramey is meeting with his
staff to approve the concepts prepared during the previous
night by his creative staff.
The concepts are valid and the media is scheduled.
Everything is ready.

2:30 p.m. The bid team presents its case in a pre-bid
meeting with the state banking department, the OCC, the
Fed and the FD IC .
In the course of the meeting, the Security First National
team is asked if it is prepared to open the bank the next
morning. On cue, Mr. Ramey presents finished copies of
the newspaper ads and the script for the radio spots, which
are being produced in Jackson at that moment.
He also distributes a prepared press release and outlines
the plans for removing the former First National Bank of
Ruston signage and replacing it with temporary canvas
signs that are being painted.

5 p.m. At the close of business in Ruston, OCC and FD IC
officials move in and seize First National Bank. The bank
now is the property of the FD IC and can be put up for
bids and awarded to the winning bidder. Regulatory ofMID-CONTINENT BANKER for O ctober, 1 9 8 6

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Circle 15 on Reader Response Card

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ficials standing by in New Orleans are
notified and the process begins. The
bidders are notified that the bank has
been closed.

5:15 p.m. The bids are presented.
There are six contenders besides Se
curity First National.
6 p.m. The assistant regional director
of the FD IC steps from the room. “Se
curity First National is awarded the
bid.”
After a telephone call from New Or
leans, Lawyer & Associates’ staff, wait
ing across the street from the failed
bank in Ruston, is allowed into the
bank. Staff members establish a work
ing relationship with members of the
FDIC liquidation team and officers and
employees of the failed bank.

6:12 p.m. Time is now of the essence
for Mr. Ramey and his organization.
Because of the secrecy of a bank fail
ure, the advertising agency could not
tell the local radio stations the name
of the advertiser for whom they were
buying the radio time. The agency
could not send the radio dubs to the
stations, because the dubs were com
mercials assuring depositors of the for
mer First National Bank of Ruston that
their money was safe.

If the commercials had been dis
tributed to the stations prior to the
FD IC closing of the bank, a run could
have started.
Mr. Ramey’s organization immedi
ately begins telephoning the radio sta
tions with which they have reserved
time. The stations are instructed to
have a representative at their local air
ports at a designated time. The sta
tions would have the commercials in
hand within the hour.

7:35 p.m. Mr. Ramey’s plane lands in
Ruston. The local radio station rep
resentative meets the plane and takes
Mr. Ramey and his staff to the bank.
The plane continues on to Monroe and
Shreveport to distribute the remain
ing radio dubs.

7:45 p.m. Mr. Ramey and company
arrive at the bank and are greeted by
members of the Lawyer & Associates
group, already in place.
Armed guards are stationed at the
locked doors. Inside, FD IC personnel
are everywhere. Files are being moved
and examined; cash is counted.

7:55 p.m. William Hankins, executive
vice president of Lawyer & Associates,
calls a meeting of bank employees. He
describes Security First National s

philosophies and notes that Mr. Kinberger, president, and Larry Acosta,
senior vice president of Security First
National, are en route from New Or
leans.
Mr. Ramey is introduced to em
ployees and he explains the need for
employees to present a positive atti
tude in the morning to reinforce what
is being told to the public on the local
radio stations.

8:10 p.m. Mr. Ramey hires a local
electrical contractor to begin remov
ing the former First National Bank of
Ruston signage at both locations.
Bank calendars are removed from
the walls. Ashtrays, pens, pencils,
anything with “FNB Ruston” on it, are
removed from the bank. The former
bank no longer exists and there is no
reminder of the past. Local conver
sation will be more than enough to
remind the town of the bank failure.
Meanwhile, Mr. Kinberger enters
his new branch and reassures the fear
ful staff. “You have a job. We do not
intend to come in and make wide
spread changes until we have had time
to fully analyze the situation. W el
come to the Security First National
family.”

Friday, A pril 11, 1 9 8 6

Tax Bill’s Effect on Tax-Exempts
Lower individual tax rates, as well
as the stiffer alternative minimum tax,
Vice President/Economist
also will lower individuals’ demand for
Centerre Bank
tax-exempts. This reduction in de
St. Louis
mand will be partially offset in many
MONG the most interesting is states by their increased attractiveness
sues of the Tax Bill is the effect as shelters from state income taxes for
residents of states that exempt interest
it will have, both directly and indi
on their own obligations.
rectly, on the market for tax-exempts.
This surely will occur in states that
The most direct impact on banks
comes from the loss of deductibility of base tax calculation on federal returns
the interest cost on funds borrowed to and whose residents therefore face sig
carry tax-exempts bought after the ef nificantly higher tax liabilities due to
fective date of the provision. The im base broadening. Also working in this
mediate result is a loss of liquidity in direction is the likelihood that states
banks’ existing portfolios, as the mar will shift to a greater dependence on
ket value of the securities will be income taxes, which retain their de
smaller than the value of holding them ductibility under the proposed tax bill,
from sales taxes, which do not.
with the advantage of the deduction.
The loss to larger banks of the de
As for new issues, the apparent re
tention of current deductibility rules ductibility of additions to the loan-loss
for the securities of state and local en reserve generally is considered to be
tities that limit their debt issues to $10 potentially the most costly of the new
million or less annually will very likely provisions, although most bankers
give rise to a two-tier market, with the seem to have concluded that its im
debt of these smaller issuers com mediate financial impact is lessened
manding higher prices relative to that by current levels of problem loans.
In time the cost will be greater, but
of larger. Nevertheless, they won’t es
cape the narrowing of the interest-rate it’s not at all clear that credit policies
differential that must result from lower will be materially changed, as has been
suggested in some quarters. • •
corporate tax rates.

By Rachel Balbach

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

9 a.rn., Ruston. Security First Na
tional opens for its first day of business
in Rouston, and what a day it is! Greet
ing the customers are smiling employ
ees, sporting boutonnieres or cor
sages, offering cake, cookies and coffee.
Copies of the newspaper ads are
mounted and displayed prominently
in bank lobbies.
Mr. Ramey returns from Jackson and
brings business cards for the bank of
ficers and name tags for all bank em
ployees.
As the day progresses, the Lawyer
& Associates staff works in tandem with
the FD IC to facilitate the smooth tran
sition in operations.

6 p.m. Security First National Bank
concludes its first full day of business
in Ruston. Public anxiety has been
overcome. Bank employees and FD IC
personnel are amazed at the smooth
ness of the transition. Everyone is re
lieved that the bank does not normally
open on Saturday. Former employees
of the failed bank, members of Secu
rity First National’s staff and the Law
yer & Associates team have worked
side by side and implemented the plan
conceived only 48 hours ago.
All in all, it has been a good, if hec
tic, work week. • •

MID-CONTINENT BANKER for O ctober, 1 9 8 6

ATMs
Some New Placements,
But Mostly Replacements
By Joe Lawler
Assistant Editor

ALES O F ATMs continue flat as
bankers continue to join net
works and seek to better market their
existing ATMs. However, some ob
servers see a trend toward placing new
ATMs in drive-up lanes and in some
off-site locations, such as malls and
plants.
At least for now, however, most
ATM manufacturers continue to rely
on the replacement market — bankers
replacing aging ATMs — for the major
share of their ATM sales.
These conclusions come from con
versations with several major manu
facturers of ATMs.

Original ATMs Aging
“Ten years ago, ATMs were in
stalled in quantity,” says Donald F.
Bartoo, director of corporate com
munications at Diebold, Inc., North
Canton, O.
“The write-off period was five to
seven years. So now banks are looking
at replacement,’ he says.
“It has become economically feasi
ble to consider replacement because
of the lower maintenance costs of new
ATMs, the marketing capabilities and
the lower cost of operations,” Mr. Bar
too says.
“Most of our business is coming from
replacement. This means full-config
ured, through-the-wall ATMs at the
branch,” says Robert Jansen, presi
dent of Omron Financial Systems, Inc.,
Las Colinas, Tex.
Total sales of ATMs are running
about 8,000 to 10,000 a year, with a

little more than half those going for
replacement, according to manufac
turers.
“The replacement market will be the
major part ol our business over the
next five years, ” agrees Serge Prizant,
marketing manager in the Financial
Systems Group of LeFebure, Cedar
Rapids, la.
“A good chunk of the existing ma
chines are more than five years old,”
Mr. Prizant says. Maintenance costs

Some bankers are replac
ing pneum atic systems
with ATMs in drive-up is
lands, manufacturers say.
are spurring bankers to replace them,
he adds. He expects sales of ATMs for
replacement to be 50% greater than
sales of ATMs for new placements.

New Location: Drive-Ups
Several ATM manufacturers see a
trend developing of placing ATMs in
drive-up lanes.
“We see our drive-up ATM as being
a very strong item ,” says Mr. Prizant
of LeFebure.
The trend is strongest in the Mid
west and Southeast, but weak in the
West, where real estate often is too
expensive to devote to drive-up lanes.
LeFebure recently introduced a new
line of drive-up ATMs, Mr. Prizant
adds. “We predict that this will be 50%
of our total volume by mid-1987.

MID-CONTINENT BANKER for October, 1 9 8 6

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Federal Reserve Bank of St. Louis

NCR also recently introduced a new
line of drive-up ATMs. The company
added the line when it saw the trend
developing, says Dick J. Mazzarella,
assistant vice president, ATM mar
keting division at NCR Corp., Dayton, O.
“In 1982, drive-up ATMs repre
sented 8% of our through-the-wall
business,” he says. “In 1985, 35% of
our through-the-wall business was for
drive-up ATMs.
Two out of five new products intro
duced by Diebold last fall were driveup ATMs.
“People already like drive-up bank
ing,” says Mr. Bartoo of Diebold. “The
ATM adds another level of conve
nience.” People also like the safety of
staying in the car, he says.
The ATM industry sees great po
tential in this trend, “when you con
sider that there are 50,000 to 60,000
drive-up lanes in the country that use
pneumatic air tubes,” says Mr. Bar
too.
So far, the typical scenario is a bank
adding a drive-up lane and deciding
to use an ATM in the new lane, says
Mr. Prizant.
Banks justify the drive-up ATM on
the basis of its 24-hour service and the
reduction in human teller costs, he
says.
A leading consultant on marketing
ATMs to consumers, Catherine L.
Bond, encourages her clients to put
ATMs in drive-up lanes. She is pres
ident of a company that bears her name
in Hartfort, Conn.
“In my mind, the drive-up is the
ultimate convenience,” she says. Banks

that put an ATM on the outermost lane
often find they can get by with one
less human teller, she says.
“This might lead to the question,
‘Why haven’t drive-up ATMs caught
on sooner?’ Some bankers have been
put off by the logistical problems —
the hassles of demonstrating the ATM;
left-handed drivers might have trou
ble using it; the ‘footprint’ of the ATM
has been too big for the pneumatic
space,’ Ms. Bond says.
“But the hardware is getting better.
And some bankers are widening the
island to fit the ATM .’’
Bobert Zellan has attempted to help
solve this problem. A builder of tra
ditional ATM shelters, Mr. Zellan,
president of Doane & Williams, Chi
copee, Mass., was asked to help fit
ATMs onto islands. “The banks came
to us and said, ‘Hey, we have this
problem.’ ” After designing drive-up
cabinets for ATMs, “Now we go to the
banks,’’ he says.
“Drive-ups and kiosks are coming
on strong. In ’85 and ’86 we’ve used a
lot more drive-ups. This is the next
least costly installation after the su
permarket,’’ he says.

Off-Premise ATMs
The top-volume locations for offpremise ATMs still are supermarkets
and convenience stores, manufactur
ers say.
For example, retail placem ents,
mostly in supermarkets and conven
ience stores, represent 70% of the
neutral-site sales at NCR. Corporate
placements in offices, plants, hospi
tals, etc., represent the other 30%, ac
cording to Mr. Mazzarella.

The latter trend is gaining steam,
manufacturers say. More banks are
placing an ATM in a company’s office
or plant, sometimes in conjunction
with direct deposit of payroll, as the
key to a relationship with the com
pany.
W ith such an arrangem ent, the
company’s employees can avoid the
necessity of going to the bank. “On

Retail
placements,
mostly in superm arkets
and convenience stores,
represent 70% of the neu
tral-site sales at NCR.
Corporate placements in
offices, plants, hospitals,
etc., represent the other
30%.__________________
payday, employees aren’t as likely to
go out at lunchtime, get caught in the
long lines and come back to work late, ”
says Mr. Bartoo of Diebold.
“We are a convenience-driven so
ciety,” says Mr. Mazzarella of NCB.
“We are starting to see more strategic,
convenient placement of ATMs.”

Bank Lobby Placements
“W e think there is going to be an
increasing trend to lobby automation, ”
says Mr. Bartoo of Diebold. The rea
son is that the role of ATMs has shifted,
he adds.
“The original strategy with ATMs
was to increase market share by plac
ing them off-premises. Placing them
in the lobby was not top-priority be
cause they would not help increase

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Federal Reserve Bank of St. Louis

Circle 30 on Reader Response Card

Marketing Still Needed
Even with some possible new trends
such as these developing, many ob
servers believe ATMs will not gain
wide acceptance with the public until
banks learn to market them better.
“Why do we have a 33% wall?” asks
Mr. Prizant, referring to the common
belief that only one-third of a bank’s
customers will use ATMs. “Because
much of the population is not com
puter-comfortable.”
While ATM manufacturers put the
responsibility for marketing ATMs on
bankers, they also feel they are doing
their bit by building more “userfriendly” ATMs.
The new generation of ATMs has a
variety of features and options —
“friendly” color graphics, audio mes
sages for instruction or marketing,
touch screens and, in some cases, in
terim-statement capability.
“Color graphics have become ex
tremely important to attract and assist
customers in using the ATM, says
Mike Morache, vice president of mar
keting and product management at
Fujitsu Systems of America, Inc., San
Diego. “It seems that for every ATM
we sell now, the bank is ordering color
graphics.”

Future Is Hazy

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market share there. You weren’t likely
to find your competitor’s customers
walking through your lobby.
“But now the cost of providing
transactions through automation is less
than providing them through human
tellers. So we believe there will be an
increased interest in lobby automa
tion,” he says.

ATM manufacturers hope they see
signs of new markets in ideas such as
drive-up ATMs, bank-at-work and
other off-premise ATM placements.
Yet some manufacturers admit they
may have to rely on building ATMs
mostly for the replacement market —
perhaps until a new generation that
grew up on video games and personal
computers begins using ATMs. • •
• Ryan, Beck & Co./Southwest has
opened an office in Dallas that will
provide underwriting, market making
and consulting services for southwest
ern regional banks and thrifts. J. David
Stanford serves as president.
• Dana H. Cook has been selected
to serve as special adviser to the
Comptroller of the Currency. He is a
partner in the Houston office of Peat,
Marwick, Mitchell & Co.

MID-CONTINENT BANKER for October, 1 9 8 6

Downtown Kansas City Celebrates
As Commerce, United Mo. Open Hqs.
United Missouri’s building is bor
WO RIBBON-cutting ceremonies
dered by Grand Ave., Eleventh and
in downtown Kansas City within
a four-month period testify to the proWalnut streets. It consists of five sto
gressive images of two of Missouri’s ries above street level along Grand
Ave. and three stories above street
leading banks.
In August, a ribbon-cutting cere level along Walnut.
Future plans call for increasing the
mony was held to open the new head
building’s height to 25 stories.
quarters of Commerce Bancshares and
The 255,800-square-foot structure
Commerce Bank of Kansas City.
will house most bank functions, with
In November, another ceremony
support and operational functions re
will be held to officially open the new
corporate headquarters of United Mis maining in the bank’s adjacent struc
ture. It features imported, polished red
souri Bancshares and United Missouri
granite and reflective solar glass, gran
Bank of Kansas City.
ite finish in interior lobbies and a land
The August event featured pealing
scaped courtyard. A two-level, belowchimes, ringing bells and the release
grade garage accommodates more than
of balloons. About 200 invited guests
300 cars.
attended from government, business
Some departments have moved into
and media sectors of the Kansas City
the new building and others will be
area.
moving throughout the balance of this
The new building is the fourth
downtown structure built by Com year.
Official opening ceremonies are set
merce this century. The other three
for November 22. • •
are the Commerce Trust Building,
erected in 1906, the Commerce Tower,
built in 1965 and the Executive Plaza
Missouri Transitions
Office Building, opened in 1974.
The new Commerce Bank Building Carlos E . Uribe has been elected vice
rises 19 stories above the block be president at Centerre Bank, St. Louis.
tween Walnut and Main on Tenth He joined the bank in 1981.
Street. The 477,000-square-foot build
Stephen A. Mace has been appointed
ing features an exterior of polished
trust officer in the trust new business
granite and clear glass at the base, with
section at Boatm en’s National, St.
a granite skin and bronze reflective
Louis. He is new to the bank.
glass on upper floors.
The structure features business and Mercantile Bank, St. Louis, has named
retail tenants, an enclosed skywalk Jerry S. Goldstein head of the private
connecting it with the Com m erce banking division. He formerly was
Tower and Commerce Trust buildings senior vice president, Mercantile Ban
and a public art gallery featuring the corp. John Q. Vye has been named
Commerce art collection. A new con senior vice president of the HC to head
nected 650-car garage is part of the a restructured planning/marketing de
development.
partment.

First the Peace o f M ind ...
then the Financial
Com mitment
There are many viable
approaches to designing
a building. Only one is the
optimal solution to your
specific requirements.
To find that optimal solution,
you must have full opportunity
to investigate your alternatives...
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You need a rapid overview of
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Bank Building
C orporation
1130 Hampton Avenue
St. Louis, MO 63139
Call Tom Spalding at
1- 8 0 0 - 325 -9 57 3

Dedicating new Commerce Bank Building in August were (from I.): David Rismiller,
bank ch.; Jonathan Kemper, bank pres; KC Mayor Richard Berkley; James Kemper Jr.,
ch., Commerce Bancshares; Rev. Earl Cavanaugh and Rabbi Michael Zedek.

MID-CONTINENT BANKER for October, 1 9 8 6

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Avoiding Personal Liability
Vital for Bank Survival
“ Look before you leap’’ still
is practical advice, but
many bankers and direc
tors aren’t taking it
By Richard H. Klovstad
Vice President
Risk Management/lnsurance
Norwest Corp.
Minneapolis

ANKING in the U. S. is undergo
ing a major structural change.
New competitors, many of which
formidable opponents, are entering the
arena that traditionally has been a
sanctuary for commercial banks. Many
of those competitors have superior
marketing capabilities, wide variety of
products and vast resources to mount
aggressive competitive campaigns.
It’s clear that only strong banks will
survive over the long term. Weak or
marginal performers will find it in
creasingly difficult to compete. If a
bank is to survive this challenge, it
must offer products and services to its
customers that are superior to those
offered by competitors. This will re
quire management and staff to be re
sourceful, bold and innovative.
Thoughtful risk taking must be en
couraged if proper results are to be
achieved.
At first blush, it may seem that such
long-term survival strategy will en
large the risk to which the bank and
its officers and managers are exposed.
While there are personal risks in most
business endeavors, they can be ef
fectively managed.
Bank management traditionally has
relied on directors and officers (D&O)
liability insurance as a means of pro
tection against m alpractice claims.
With D&O largely unavailable today
at less than extraordinary prices, in
vestigation is being made into what
safeguards exist to stave off personal
liability.
First, it should be realized that
bankers must elevate their level of care
and diligence if they are to avoid per
sonal liability.
Even though a bank officer may not
be protected by D&O insurance, sig-

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

nificant protection normally is afforded by bank bylaw indem nity
agreements. In most cases, a bank officer can be indemnified for claims of
malpractice if he/she acted in good faith
and in the best interest of the organization he/she serves.
Personal liability usually can be
avoided if the following principles are
adopted:
• Avoid any activity that can lead to
a real or perceived conflict of interest,
Self-serving practices and conflicts of
interest can lead an individual into serious trouble. Many successful claims
against bank officers are the result of
are
such conflicts.
• Operate with openness, fairness
and complete candor. Activities conceived and executed in an air of se-

crecy and stealth raise questions in
people’s minds about their appropriateness.
• Don’t make a bad situation worse,
If a mistake has been made, accept
responsibility for it. Make proper disclosure and seek corrective action.
• Ensure that actions and decisions
are made in good faith and fair dealing
and that an arms’ length relationship
exists between bankers and their customers.
• Never compromise personal convictions about what is right or wrong,
Above all, operate with complete integrity.
While risks can never be totally
eliminated, it is comforting to know
that they can be properly managed with
proper thought and action. • •

Right People in the Right Jobs
adverse to taking risks, can think be
yond the edge of the balance sheet,
can tolerate and make clear ambiguous
situations and can maintain the excite
ment of seeing new opportunities each
AS liability protection been an
day.
excuse to take the low road and
Selecting the right people for the
do less than required to meet new
right positions may mean going out
challenges or has it been an excuse to
side the banking industry to find talent
shift blame for fouling up elsewhere?
in marketing, cash-flow management,
Tradition and habit were comforting
strategic planning, human-resource
until bank closings began to rise at a development, financial planning and
dramatic pace. Bank closings for 1986
business consulting.
could total 145 — nearly three per
The use of task forces helps distrib
week.
ute accountability to more people. Task
What did the managements at these
forces can bring diverse views to
failed banks do to jeopardize peoples’ gether to focus on key issues such as
savings and trust? Executive account
loan criteria, loan/loss ratios, cost con
ability may have fallen short of what
trol and marketing. A sense of urgency
was required to meet the demands of and a sense that individuals can make
a competitive financial-services indus a difference by immersing themselves
try and a sophisticated customer.
in work and problem areas helps boost
The measure of success in banking
creativity. The attitude that it’s OK to
is market share with a good return on
make mistakes as long as the lessons
equity. The competitive edge will go learned are clear and shared with the
to banks that are willing to downsize
team can be encouraged.
and restructure with the right people
It all boils down to the realization
in the right positions.
that bankers lead the informed, not
Bank executives can encourage
the uninformed. Banks that trust their
greater responsibility for actions with people, allow them the freedom to
less liability protection by selecting or choose how to meet business objec
developing people who have clear vi tives and provide feedback on results
sion, are good self-managers, are not will do well. • •

By Robert Vecchiotti

President
Organizational Consulting Services, Inc.
St. Louis

MID-CONTINENT BANKER for October, 1 9 8 6
Circle 6 on Reader Response Card —4

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

It is the one essential element in every
successful financial relationship.
Trust is confidence earned.
It is shared involvement.
It grows in an environment of mutual
understanding, from promises kept,
from the integrity and perseverance
behind every difficult task done well.
The Bank Building Corporation
No-Risk Agreement is a statement
of mutual trust. It is a statement of
our faith in our ability to meet
problems with solutions.
No Risk means just that
No surprises. Promises kept.
1t is the stuff from which
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J . ' Corporation
7130 Hampton Avenue
St. Louis, MO 63139
Call Tom Spalding at
1- 800- 325-9573

Iowa BA Centennial Convention
Features Cake, Bubbly, Balloons
ABA presents preliminary
suggestions of ag study
during ag breakfast
By Jim Fabian
Senior Editor

ANKERS and their spouses at
tending last month’s annual con
vention of the Iowa Bankers Associa
IBA officers blow out candles on huge cen
tion feasted their eyes on what may tennial cake during convention break. From
well be the largest cake they have ever I: L. Fred Hagemann, treas.; Neil Milner
seen during ceremonies honoring the (hidden), e.v.p.; J. Bruce Meriwether, out
going pres.; R. Russell Howard, new IBA
IBA’s centennial.
The two-layer creation was more pres.
than ample in size to feed those in
attendance. But many were so occu rather than civilized discussion.
As if planned, an illustration of what
pied waving small U. S. flags and
blowing horns typical of New Year’s he said took place during the next day’s
Eve parties that the cake and accom sessions, when an attorney presented
panying champagne almost became a workshop titled “How to Control
Your Regulator.” The attorney told
secondary in importance.
Would that Iowa banking were as how she had assisted banks that were
pleasant as the IBA’s centennial ob having regulator trouble and that she
servation! During the convention, one often had made regulators “blink”
speaker stated that he thought the ag when she challenged some of their ac
crisis was bottoming out. The next tions!
The Iowa convention was chosen by
morning, the front page of the Des
Moines R egister proclaimed that Iowa the ABA as the launching pad for pres
banks were facing better times. Bank entation of initial information from
ers shook their heads in disbelief when “Transition in Agriculture: A Strategic
they saw the headline, commenting Assessment of Agriculture and Bank
that the reporter who wrote it was ing,” the study authorized by the ABA
last year.
overly optimistic.
Only preliminary statements could
It was difficult to get any banker in
attendance to predict when things will be made at the convention and they
return to normal — which most con were made by an impressive duo —
sider to be the 1970s. However, one the past and present chairmen of the
speaker frankly told his audience that ABA’s agricultural banking division:
the 1970 decade was an aberration, not Alan R. Tubbs, president, First Cen
normalcy. He implied that today’s sit tral State, DeWitt, la., and Mike Fitch,
uation is likely to become the norm — vice president, Wells Fargo Bank, San
Francisco.
at least, for the forseeable future.
Key portions of the report indicate
As usual, the most valuable portions
of the convention were the special-in that the ag crisis will deepen without
terest sessions. On the first day of these new policies and practices. In order to
sessions, a regulator taking part in a survive, farmers must better utilize
technology and strengthen the busi
panel titled “Meet Your Regulator
commented that banks facing regula ness management of farming opera
tory action too often engage an attor tions, according to the study.
Mr. Fitch said the ABA study “of
ney to go to bat for them and often the
situation becomes one of confrontation fers the tools needed for development

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of sound long-term planning, policies
and procedures consistent with the
new realities for the agricultural and
ag-banking industries.” He added that
the project’s planning guide will ena
ble individual banks to adopt specific
strategies consistent with their unique
situations and needs.
He said the report points out that
ag banking must form new coalitions
to control its own destiny by becoming
pro-active in the political process on
behalf of farm customers as well as it
self.
He said the study shows that the
demise of the small independent bank
is not a certainty and that securitiza
tion in the form of a secondary market
for farm real-estate loans is necessary.
Mr. Tubbs said the study suggests
that macro-economic policies — fiscal
and Fed monetary policy — are more
important in determining the longrange economic environment for ag
riculture than is agricultural policy.
He sees a situation in which farms
become big businesses to be serviced
by regional and even money-market
banks. Small farms will continue, but
will be part-time operations and will
be serviced primarily by small banks.
He termed the study a “road map”
that will be helpful in adopting legis
lative strategies and providing assist
ance to Congress. It also should help
every bank understand the fundamen
tal structural changes occurring today
and help them assess their changing
market and adopt competitive strate
gies for the future.
The IBA reinstated its traditional ag
breakfast at this year’s convention.
Messrs. Tubbs and Fitch spoke at that
event. Iowa was selected as the loca
tion to introduce the ABA study’s pre
liminary results because of the impor
tance of agriculture to the state’s
economy.
Special “moments in history” pres
entations were made during the con
vention, during which students from
nearby educational institutions pre
sented historical anecdotes about the
history of the IBA. • •

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ABA Banking Advisors Tour Nation
To Enlighten Consumers, Media
Emma Lou B ren t, executive vice
president/CEO, Phelps County Bank,
Rolla, Mo., drew from talks with con
sumers in Indiana, Pennsylvania and
Louisiana during the year.
Jam es A. W hite, executive vice
president, First National, Tulsa, told
consumers in Detroit and Scranton,
Pa., that “Bankers are responsible,
concerned citizens and provide im
portant services to their communities
By Jim Fabian
and customers. Given the freedom to
Senior Editor
offer additional services, banks would
NE O F the first conclusions an
be able to offer customers the ability
ABA banking advisor comes to
to obtain most of their financial needs
after meeting with media representa
at one place and at lower cost.
tives and the consuming public is how
eager these people are for knowledge
about the banking industry.
A second conclusion is that precious
little knowledge of banking and the
changes it is experiencing because of ta n k in g advisors a t
deregulation is being disseminated to
iriefing session at ABA
îeadquarters. From I.:
the general public.
.ynn Anderson, pres./
“Bank customers are confused by
ZEO, First N at'l, Lawrecent changes in the financial-serv
ence, Kan.; Jim W hite,
î.v.p., First Nat'l, Tulsa;
ices industry and it’s our job to inform
*hil Corwin, ABA gov
people how those changes affect them
ernment relations.
and how they can benefit from them ,”
says Lynn L. Anderson, president/
CEO, First National, Lawrence, Kan.
Mr. Anderson is one of 16 banking ad
visors circulating throughout the na
tion under sponsorship of the ABA and
one of four interviewed for this article.
All four advisors are committed to
The importance of the advisor pro the program for another year and are
gram is emphasized by J. Douglas Ad sold on the benefits such a program
amson, senior vice president, Bank offers, both for the public and bankers.
One Lafayette, In d .: “We are financial
“I like the program because it en
advisors and problem solvers, and it’s ables me to make a contribution to the
important that our customers know banking industry and be benefitted
they can come to us for solutions to personally,” says Mr. White. Due to
the extensive interaction he has had
their financial puzzles.”
Mr. Adamson discussed banking is with representatives of the media over
sues with the public in four major pop the past year, he feels he can do a
ulation centers over the past year — better job working with local media
Charlotte, N .C., Atlanta, Boston and contacts.
He lauds the banking-advisor pro
Tulsa.
“If banks are to continue as a major gram as good for the industry. “The
force in the American financial sys banking industry needs a program in
tem, they must remain competitive by which it presents itself in a positive
offering a diversified array of financial manner,” he says, “one that features
services. Our customers have indi bankers willing to talk about industry
cated they are interested in satisfying problems in the context of consumer
their financial needs at one source, and interests.’’
He found on some occasions that he
commercial banks want to be that
source. ” This is one of the conclusions was more eager to tell banking’s story

Interest in banking, per
sonal finance is high; few
instances of antagonism
noted by four Mid-Continent-area banking ambas
sadors

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than some media representatives were
to listen to it; but, generally, media
people expressed a genuine interest in
what he had to say.
At each stop, local media represen
tatives are briefed about issues affect
ing the financial-services industry.
When an advisor appears on a local TV
show or is interviewed by a reporter,
he is expected to respond to questions
they pose.
Mr. White found the issue of bank
safety and soundness to be of great
interest to media representatives. He
happened to be in Detroit on the very
day the Michigan reciprocal banking

bill landed on the governor’s desk for
signing. He was ready for media ques
tions on the topic because he had met
with local bankers to become familiar
with the Michigan banking situation.
He also had gone through an extensive
training program at ABA headquarters
prior to his travels. This training in
cludes mock interviews and includes
“baptisms by fire” by actors pretend
ing to be antagonistic reporters.
While most advisors report they had
few antagonistic interviews, Mr. Ad
amson participated in a call-in show in
Boston where the host was critical of
both the banking industry and Mr. Ad
amson as a banker. Mr. Adamson soon
learned that Bostonians are concerned
with consumer issues, such as life-line
banking. The situation provided him
with an excellent opportunity to tell
the public about the banking indus
try’s desire for additional powers so it

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can offer the new services the public
wants. He has a tape of the show and
has been told that he did a good job
projecting the industry in a good light.
“But they didn’t buy all of it,” he
admits.
Ms. Brent was faced with a some
what similar situation in Louisiana,
where she appeared on a program aired
on a minority-owned radio station. She
sensed a defensive attitude from both
the interviewer and those who called
in with questions.

Being banking a dvi
sors enables us to un
derstand the media
better and do a better
job in getting our mes
sage out:.

—J. Douglas
Adamson
“I gave them information they could
use when seeking help when present
ing loan requests to banks,” she says.
“I told them where to go to get as
sistance, such as university extension
centers or regional planning commis
sions.” She knew she had made prog
ress when one of the callers told her
that she had “made his day.”
The current group of banking ad
visors started out a year ago stressing
the fact that banks are offering basicbanking services and making disclo
sures about rates and checkholding
policies. However, about midway
through the year, emphasis was
switched to explaining banking’s de
sire to secure expanded powers that
would result in savings for consumers.
Ms. Brent says her experience as a
banking advisor has had an effect at
her bank. “It’s made me realize the
need to be more consumer oriented,
to find out what the customer wants
before creating a product the bank
thinks the customer wants. I listen
more now. ”

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Federal Reserve Bank of St. Louis

One of Mr. Anderson’s themes was
shopping for banking services as he
travelled in Minnesota, New Jersey
and California.
“The public doesn’t know much
about new services being offered by
banks resulting from deregulation, ” he
says. That’s because there is a signif
icant information gap between bank
ers and their customers.
There also is an information gap be
tween bankers and the media, he says,
which means banking’s story isn’t being
adequately told. Although some re
porters were knowledgeable about
banking, many were not and these
were very receptive to the information
he presented.
He visited a college class in New
Jersey where students were interested
in bank profitability and how individ
uals could best handle their personal
finances. Ms. Brent visited a college
class that was studying the Federal Re
serve System. Most questions were
about the Fed and students were in
terested in how a check passes through
the system. When visiting a college
class, Ms. Brent typically gives a 15minute presentation about banking
before opening the session to ques
tions.
She happened to arrive in one city
on the same day a local bank was
closed. It was the first closing in that
area and she was kept busy respond
ing to questions about bank safety and
soundness. She took time to discuss
the FD IC insurance system and how
it works.
Banking advisors typically make
three trips a year, and participate in
from five to 10 interviews per day.
They are accompanied by ABA-supplied representatives who set up in
terviews with newspaper reporters and
radio/TV hosts. Some programs fea
ture called-in questions. Advisors have
precious little time to think of re
sponses when they are on the air!
Among the challenges banker ad
visors face is being willing to listen
rather than talk all the time and avoid
ing the use of banking-industry jargon
that confuses the public. Surprises are
abundant. One example is a comment
made by a newspaper reporter in Tulsa
to Mr. Adamson. The reporter said Mr.
Adamson was more credible to an
Oklahoman than a local banker would
be because Mr. Adamson was from In
diana, where banks have a b etter
safety/soundness record and the econ
omy is not suffering as is Oklahoma’s.
Mr. Adamson drew a completely op
posite reception from some media rep
resentatives in Boston, who, he feels,
didn’t want to give heed to a Hoosier
banker because they could draw on

the expertise of bankers in nearby New
York City.
Questions asked varied according to
the area of the country, advisors say.
Safety and soundness was on con
sumers’ minds in areas where banks
are failing and the fate of banks that
are acquired was of concern in areas
where merger/acquisition activity is
rampant.
Mr. Adamson was well-equipped to
respond to the latter topic, since his
bank was acquired recently. Relatively
few questions were asked about life
line services but questions about IRAs
were asked almost everywhere.
Ms. Brent says she felt like a teacher
enlightening the public, telling them
about consumer topics, such as how to
get information from a bank. “The
public is somewhat intimidated by
bankers,’’ she says. She told con
sumers about new accounts and urged
them to take advantage of these ac
counts. She stressed the fact that the
small saver is the principal beneficiary
of bank deregulation.

We’re more like teach
ers than advisors, tell
ing the public about
consumer topics, such
as how to get informa
tion from a bank.

—Emma Lou Brent
“The process of training bankers to
speak out is extremely important to
the industry,” Mr. Anderson says. A
program such as banking advisors
wasn’t as necessary in the days of reg
ulation. “There is a great lack of un
derstanding on the part of the public
about how deregulation affects con
sumers and these changes have a great
positive impact on the public. It’s
banking’s responsibility to speak out.”
All four bankers say they are looking
forward to another year on the road.

MID-CONTINENT BANKER for O ctober, 1 9 8 6

What Do Consumers Want?
Service of value, fast
service and personal
ized service—not nec
essarily In that order.
By Joe Lawler
Assistant Editor

OST CONSUM ERS fall into one
of three major stereotypes.
Banks will have to become adept at
reaching all three of these consumer
types to be successful, according to Dr.
Leonard Berry.
Dr. Berry is Foley s/Federated Pro
fessor of Retailing and M arketing
Studies at Texas A&M University, di
rector of the Center for Retailing Stud
ies and currently is president of the
American Marketing Association.
These three types are the “Get My
Money’s W orth’’consumer, the “Time
Buying” consumer and the “I Am An
Individual consumer.
Dr. Berry described these three
types, and outlined strategies for
reaching them, at the annual corre
spondent bankers conference of Mer
cantile Trust, St. Louis, held recently
in St. Louis.
The “Get My Money’s W orth” Con
sumer will buy generic facial tissue be
cause he or she perceives no differ
ence in quality with the high-priced
brand. “At the same time, this con
sumer will go into a store and buy the
highest-priced appliance because of its
reputation for quality,’’ Dr. Berry said.
This consumer’s financial goals in
volve m aking money, not storing it.
To appeal to this consumer, Dr.
Berry recommends the following:
— M arket a custom investm ent p o rt
fo lio . This portfolio should include ac
counts designed for specific goals:
safety, tax avoidance, high potential
return, liquidity, trust, etc.
Using this portfolio, the banker can
sit down with this consumer and cus
tom package an investment portfolio.
— Provide fin an cial planning s erv ices.
These consumers need help formulat
ing financial plans. While many afflu
ent consumers already have assistance

available in some form, much of the
middle market needs help in meeting
future needs, avoiding taxes, meeting
retirement goals, and so on.
These consumers don’t want some
one telling them what do to; they want
an unbiased planner telling them the
alternatives. “If they feel the planner
is pushing a particular product, they
will walk,” Dr. Berry added.
Most banks do not yet have the staff
expertise and systems in-house to offer
a good financial-planning service.
However, financial planning provides
the potential for a new stream of fee
income and provides a core for rela
tionship banking.
Financial planning is a menu of

"Time buying” consumers
have made m icrowave
ovens the fastest selling
appliances.
services provided by a broadly-based
generalist, backed up by specialists.
So, instead of having to run hither and
yon all over the bank to get what he
wants, the customer can go to the
financial planner, who acts as a clear
inghouse for him. The financial plan
ner then contacts the other de
partm ents of the bank to arrange
services, making the bank much easier
to deal with.
“Until we do this, we re whistling
Dixie about relationship banking,’’ Dr.
Berry said.
— Sponsor consum er education p ro
gram s. Provide financial information
to the consumer through customer ac
cess terminals (also known as answer
machines), new sletters and maga
zines, micro software for home bank
ing and finance, and so forth.
The traditional cornerstones of
banking — storing funds, transacting
funds and loaning funds, are no longer
enough for these consumers, Dr. Berry
said. “Consumers are becoming inves
tors, and your competitors more and
more are investment houses.”

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The “Time Buying” Consumer has
much to do and little time. These con
sumers have made microwave ovens
the fastest selling appliance of recent
years.
To appeal to these consumers, be
come a time-efficient bank, Dr. Berry
said. Make high-quality, fast service
available when and where the cus
tomer wants it.
Bring the bank to the customer
through a hub-and-spoke system, with
drive-ins, ATMs, shopping-cen
ter branches, apartm ent-com plex
branches, luxury branches in upscale
shopping areas and home banking, Dr.
Berry recommended.
Some of the features of the timeefficient bank are:
• Signage attracts and directs con
sumers.
• Contact employees are trained to
sell, equipped for electronic banking
and able to handle telephone banking
and selling.
• CIFs (customer information files) are
easily accessible to contact personnel
to speed service.
Being tim e-efficient is becom ing
more crucial than ever to the success
of banks. However, it is not enough
by itself, Dr. Berry added. It is simply
one requirement of success.
The “I Am An Individual” Con
sumer wants to be treated with per
sonal service.
To appeal to these consumers, Dr.
Berry recommended the following:
— Become a relationship bank. Treat
customers as clients rather than cus
tomers. A customer is anonymous,
someone who comes in and buys a
service once and perhaps is never seen
again. A client is a regular customer
of the bank, who has a relationship
with that bank.
— Send them handwritten notes oc
casionally.
— Call them instead of bouncing their
checks.
— Call them by name when they come
in.
— Satisfy all their financial needs.
— Assign a personal banker to the
client.
To become a relationship bank, a

Financial planning pro
vides a core for the
relationship with valueoriented consumers.

all their customers.
For the same reasons, many small
banks are being formed in California,
Dr. Berry added. Many people like
being treated like individuals in Cal
ifornia, and so they like doing business

bank must take the following steps:
— Segment the market. To perform
at a superior level, the bank must seg
ment the market and focus its re
sources on particular segments. At the
same time, the hank should not close
its doors to any other customers.
— Offer a core service around which
the relationship can be built, for each
segment the hank is targeting.
— Make account representatives
available. These should be bankers
with the competence and authority to
satisfy all the financial needs of the
client, on the spot.
— Offer relationship pricing. This pro
vides an incentive to the client to con
solidate accounts. The incentive can
be discounted fees, discounted loan
rates, perks, etc.
— Finally, the bank should ensure that
its staff is courteous and helpful by
providing staff training and education.
Community banks are in an ideal
position to treat customers like clients,
Dr. Berry added, because they know

with a small bank.
Many consumers have some traits
of all three of the preceding consumer
types, Dr. Berry concluded. A wise
banker will find ways to appeal to all
three types. • •

Tax Bill: Boon to Ag Real Estate?
h e new tax bill is expected to deter “tax-loss’ investors from
agriculture and encourage a new breed of investors looking for no
debt, safe, conservative investments with cash return each year, says
a spokesman for a firm specializing in farm real estate and investments.
“Agriculture is in the position today to afford such investments,”
says Murray B. Wise, president, Westchester Group, Inc. “We re
seeing some very astute money coming to this marketplace.”
In addition to creating a new investment philosophy, this shift is
better for the farm economy as a whole, he says. Productive farms are
being sought, reversing a downward trend in the market. Many people
are working with tenant farmers, which allows the farmer who accu
mulated a large debt when land prices were high a way of resolving
that debt with a new source of income.
“The proposed tax bill also has the effect of opening up the market
to a broader range of people, Mr. Wise says. Farmland syndications,
or limited-liability partnerships, are growing in popularity, letting in
the limited-capital investor. They also make it possible to own parts
of farms in different geographic locations.
He believes any harmful effects of the tax bill will be seen in true
commercial real estate and will bring back to farmland some of the
capital diverted in the past.

ProfitabM ty.
Another reason fo r selecting Swords Associates.

“My $32 million dollar national bank
has a rural customer base and for the last
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loan problems. With two other competing
banks in this community of 11,000, who
have recently established branches, I felt
the need to call Swords Associates.
They met with my key staff
members, as well as the Board of Directors

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Federal Reserve Bank of St. Louis

and outlined a strategic plan for our bank.
They evaluated our problems, gathered
information on our competitors and
arranged for a two day retreat with the
directors, and upper and mid-level
management.

J S

Later, a five-year comprehensive
operating plan was formulated by Swords
Associates. A plan of implementation
which identified each objective and
established specific procedural plans was
developed to help our bank realize new
goals.
At our final meeting the plan was
unanimously endorsed by the bank’s
personnel. I announced an incentive
program in which all employees would
be rewarded for each goal as it was
achieved. We realized this plan’s success
was dependent upon consistent monitoring
and annual comprehensive objective
evaluation, thus we chose to retain
Swords Associates.
Over the last three years our
operating revenues has increased nearly
38%, and the bank’s R0A has increased
from .86 to 1.32%. We have within the
last year established a branch in proximity
to our competitor’s, and 12 of our 14
original objectives have been achieved on
time. Our success is due in a large part to
the plan Swords Associates designed for
our specific needs.”

r / A

SWORDS ASSOCIATES. INC.
PROFESSIONAL BANKING CONSULTANTS

4900 OAK

SUITE 301

KANSAS CITY, MISSOURI 64112

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(816) 753-7440

MID-CONTINENT BANKER for October, 1 9 8 6

Banking-Legislation Politics
They are such that only in
a crisis situation is pas
sage of legislation likely

their traditional spheres is unfair to with great difficulty, if at all, if there
those who do not have these advan is some politically knowledgeable
tages, creates distractions to the or group with a significant economic is
ganizations’ performance of the jobs
sue at stake that opposes legislation
they were created to do and is poten and that is not willing or able to com
tially unsafe and threatening to the sta promise on that legislation.
bility of the financial system.
4. The closer that consideration of
By Michael A. Greenspan
The Senate banking committee has proposed legislation comes to an elec
a differing view, which is shared by tion the less likely it is that someone
the Senate as a whole, and, to an even running for office will take a position
S STRONG as the certainty of greater extent, by the administration.
contrary to the interests of any im
death and taxes is the uncer To be neutral, let us call it simply the portant group.
tainty of the congressional process.
“nontraditional” view of the role of fi
5. Even legislation that passes the
Nevertheless, it appears that legisla nancial organizations. It asserts that fi above tests and is widely supported
tion on nonbanks will not pass this nancial institutions must have the abil can be stalled by being held hostage
term. This was legislation not opposed ity to adapt to changing times; that to the passage of controversial legis
by the vast number of affected inter many, if not all, of the Glass-Steagall- lation.
ests and strongly fa v o r e d by the In Act prohibitions are no longer neces
Let us examine how these princi
dependent Bankers Association of sary; that a single institution blending ples work in the context of four pend
America; the Federal Reserve Board;
Congressman Fernand St Germain (DRI), chairman of the House Banking,
Housing and Urban Affairs Commit
Views of the proper roles of banks and thrifts
tee; and Senator Jake Garn (R-Utah),
differ greatly in Congress. Harmonizing them is
chairman of the Senate Banking,
extremely difficult in view of the practical aspects
Housing and Urban Affairs Commit
tee.
of passing legislation today.
This article is about politics and the
prospects this term for banking legis
lation which must reconcile the con
the powers of banks and thrifts should ing pieces of banking legislation: the
flicting views of the House, Senate and
offer to customers a complete array of recapitalization of the FSLIC ; addi
administration on the proper role for
financial services, very broadly de tional powers to regulators to facilibanks and other financial institutions.
fined; and that the asset side of the tiate the sale of failed or failing banks;
In the House, the banking commit
bank’s balance sheet should be de the closing of the nonbank “loophole ”;
tee and the House as a whole embrace
regulated to an extent that parallels and the granting of additional powers
a “traditional” role for banks, thrifts
deregulation of the liability side to to banks.
and other financial institutions: Banks
permit banks to better spread their
Understanding the FSL IC recapi
and thrifts should be confined to their
risks.
talization legislation is easy: The fed
traditional activities, the Glass-SteaIt is obvious that the views as to the eral insurance fund for thrifts is in a
gall Act barrier against mixing banking
proper role of banks and thrifts differ precarious financial position. While
and securities activities should be re
greatly. Harmonizing them is ex there are substantial questions as to
tained and the barriers between bank
trem ely difficult. And it is even more whether the industry or the govern
ing and commerce should be kept in
difficult in view of the practical aspects ment should pay, there is overwhelm
place. The essence of the position is
of passing legislation today. Lobbying ing consensus that action must be taken
that banks and thrifts each have a
today is very sophisticated. It leads to by someone at some time to strengthen
unique role to play in the national
the following practical “rules” of pol the fund. Achieving legislation on just
economy and each has been given cer
itics:
the recapitalization is a matter of com
tain legislative advantages to help them
1. Legislation can be passed if there promising on its cost to the govern
perform those roles (deposit insur
is a crisis or a true consensus in sup ment.
ance, discount-window access, favor
port of it.
Understanding the legislation con
able tax legislation, etc.). To permit
2. Legislation can be relatively eas cerning the sale of troubled banks and
these organizations to operate outside
ily passed (or an amendment obtained) thrifts is only slightly more difficult.
that favors some politically knowl The Bank Holding Company Act pro
Mr. Greenspan is a partner in the Wash edgeable person or group and that hibits companies from acquiring banks
ington, D. C., law firm of Thompson &
hurts no politically knowledgeable in more than one state without the ap
Mitchell, which represents banks and HCs
proval of the other states and prohibits
before Congress. He is a former Fed of person or group.
3. Legislation can be passed only banks from acquiring thrifts. In order
ficial.

MID-CONTINENT
BANKER for October, 1 9 8 6

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to provide stability to a financial in
dustry that was facing the prospect of
many failures, Congress in 1982
adopted legislation that overrode those
prohibitions in the case of failed banks
and thrifts that are large and not at
tractive to potential in-state acquirors.
There are two possibilities for filling
the void. One is a simple extension of
the expired legislation. The second,
advanced by bank regulators, would
permit them also to arrange for the
acquisition of smaller financial insti
tutions that have failed, or are failing.
The opponents of both approaches, but

particularly the latter, are concerned
with a departure from the policy of
allowing the states to decide the extent
to which entry should be permitted by
out-of-state organizations.
The nonbank controversy also must
be seen in the context of the under
lying issues. The Bank Holding Com
pany Act not only prevents a bank HC
from acquiring a bank in another state,
but prohibits companies that control
banks from engaging in nonbanking
activities. “Bank” is defined in the
statute as an institution that accepts
demand deposits and engages in the

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business of making commercial loans.
The Supreme Court has ruled that
the definitions of those terms should
be read narrowly: “demand deposits”
do not include NOW accounts and
“commercial loans” do not include CDs
or similar investments that banks nor
mally make. The result is that a non
banking company can acquire one of
these “nonbanks” and combine bank
ing and commerce to that extent and
a bank HC can acquire a “nonbank’
in a state that does not permit acqui
sition of its banks by out-of-state or
ganizations.
It is not clear whether the Congress
that adopted the current definition of
“bank” would have regarded the abil
ity to operate through nonbanks as a
loophole. N evertheless, virtually
everybody has endorsed, or at least
not opposed, legislation closing the
“loophole”: the Fed strongly favors the
bill, regarding it as one of the more
important banking issues facing Con
gress; the Independent Bankers As
sociation of America strongly supports
passage of the legislation; the chair
men of the House and Senate banking
committees have gone on record as
strongly favoring the legislation; the
House banking com m ittee has ap
proved the legislation; and in 1984,
the Senate approved legislation con
taining this provision by a vote of 89
to 5.
Major opponents are certain large
bank HCs (their opposition has less
ened with the Supreme Court ap
proval of regional compacts) and some
large companies that would like to en
ter banking. These companies are not
particularly vocal, because of the pos
sibility that their entry into banking
may result in Congressional authori
zation for banks to enter their fields.
As far as the topic of new powers for
banks is concerned, legislation passed
by the Senate in 1984 would have ex
panded the authority of banks to sell
and distribute revenue bonds and
m ortgage-backed securities. The
administration has gone further and has
supported, not only these powers, but
the sponsorship and sale of mutual
funds; real-estate investment, devel
opment and brokerage; and insurance
underwriting and brokerage.
The conflict is quite clear: The House
and the affected industries are op
posed to the legislation; the adminis
tration, the banking industry and the
Senate presumably would take the
same “liberal” positions they have been
taking.
To understand the current political
situation, it is necessary to appreciate
the following:

MID-CONTINENT BANKER for O ctober, 1 9 8 6

1. Certain senators on the banking
committee that voted in favor of bank
ing powers in 1984 are running for reelection this year and do not want the
committee to consider banking-pow
ers legislation at this time; it is too
close to an election. In accordance with
Political Rule 4, the people you hurt
remember the injury more often than
the people you help remember the fa
vor. See also Political Rule 3: Politi
cally savvy and organized opposition
to legislation generally can stop it in
the absence of a bona fide crisis or a
national consensus on the issue. It goes
without saying that industries opposed
to expanded banking powers are po
litically savvy.
2. The House Committee that over
sees the securities industry has in
sisted that it, as well as the banking
committee, should consider any leg
islation expanding the securities pow
ers of banks. See Political Rule 3.
3. Knowing how important the non
bank legislation is to the House, Sen
ator Garn and the administration have
stated that they will not allow that leg
islation unless banking powers are ex
panded. See Political Rule 5 on leg
islation as a pawn.
4. Knowing how Senator Garn feels
about achieving some legislation, Con
gressman St Germain has stated that
the House will not consider any bank
ing legislation at all unless it includes
nonbanks. See Rule 5 on legislation as
a pawn.
5. The apparent stalemate caused
by points 3 and 4 caused Senator Garn
on August 7 to announce that he was
submitting new legislation that would
deal only with the recapitalization of
the FSL IC and the acquisition of trou
bled institutions (together with some
other minor matters), but addressing
neither nonbanks nor new-powers is
sues. On August 13, the Senate bank
ing committee approved the bill.
Chances for passage of even this
limited legislation are problematical
because of the hostage principle of Po
litical Rule 5. Senator William Proxmire (D Wis.) has announced that he
will attempt to prevent Senate passage
of the legislation, by filibuster if nec
essary, if it does not include nonbank
legislation. Other senators may try for
additional banking powers. Senator
Garn and the administration have flatly
stated they will not allow nonbank leg
islation unless new powers are
adopted. And in the House, Congress
man St Germain has threatened to stop
all banking legislation that does not
plug the nonbank “loophole,’’although
other members of his committee be
lieve passage of FSL IC and takeover
legislation is necessary.

This raises the question of how these
strong views are to be resolved. Po
litical conflicts resemble the teen-age
practice known as “chicken, ” in which
two people drive cars toward one an
other until one, in a moment of sanity,
“chickens out” and swerves to avoid
the catastrophe.
In speculating about which partisan
will “chicken out” in politics, as in any
negotiation, one must try to assess how
strongly each one wants his goals and
how unpalatable to each are the oth
er’s goals. In addition, on the political
level, there is the question whether
the public interest requires (not sug
gests) a particular course of action.
The first question is what absolutely
must be done now. Legislation to cap
italize the F SL IC certainly is desirable
but probably could be put off for a
short time. Emergency takeover leg
islation is desirable, but the need for
it could be obviated by state legisla
tion. Powers legislation may or may
not be desirable, depending on one’s
philosophical view of the role for banks,
but even its supporters do not claim
it is mandated by a crisis. And there
seems to be no real push for nonbank
legislation at this time because com
panies are not rushing to establish
them , primarily because they fear

Congress will retroactively prohibit
them.
Where does that leave the legisla
tion? It is at least relatively clear that
powers and nonbank legislation, which
are inextricably tied together, both are
dead; and FSL IC recapitalization and
emergency takeover legislation, hav
ing cleared the Senate banking com
mittee, have a reasonable chance of
passage. Roth Senator Proxm ire’s
threat of filibuster and Congressman
St Germain’s threat could derail even
those matters. I think most observers
regard the chances of even this limited
banking legislation passing this term
as being too close to call.
In the longer run, it is clear that the
FSLIC recapitalization will have to be
addressed. As far as powers are con
cerned, it is difficult to imagine the
passage of major powers legislation
until the affected industries are more
willing to compromise the scope of the
activities in which each may engage.
(See Political Rule 3 on the relative
ease of blocking legislation.) And non
bank legislation remains doubtful as
long as the powers question remains
in doubt.
All of which is subject to the political
rule that supercedes all political rules:
In politics, nothing is ev er certain.

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• Bank Mergers and Acquisitions

• Strategic Planning
• Analyzing Specific Banks
• Making or Responding to
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• Bank Valuations
• Fairness Opinions
• Exchange Ratio Determinations
• Bank Holding Company Formations
For further information please contact:
Robert L. Walters, Sr. Vice President, Sheshunoff & Company, Inc.
One Texas Center, Austin, Texas 78704 (512) 472-2244

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Telecommunications Marketing Formula
The shift in responsibility for long-term financial security
from banks to individuals will accelerate the demand
for more personalized, cost-effective products
By Richard Darwin
Battelle Memorial Institute
Columbus, O.
and Bruce Niswander
Objective Financial Systems
Columbus, O.

NFORMATION is the raw material
that fuels the engine of today’s fi
nancial-services industry. H istori
cally, this statement has always been
true, in spite of insistence by many
bankers that their major concern was
the ability to attract and manage
money. The skillful application of in
formation resources will become even
more important as the combined effect
of deregulation and the computer per
manently alter the financial-services
industry.
Any further consideration of this
forecast requires an understanding of
certain “givens” or assumptions. The
first assumption is to recognize the ex
istence of what we prefer to call the
“right” formula used in the design of
profitable information systems. That
is, access to information must be de
livered to the “right” person, at the
“right” location, at the “right” time, at
the “right” price! A simple concept,
yet too often ignored by network de
signers and information-service pro
viders.

The “Right” Formula
A significant number of firms pur
suing the financial-services market
have recognized the existence of the
“right” formula and have invested
heavily in the development of net
work-oriented com puter systems.
Their primary goal is the ability to pro
vide consumers with limitless access
to financial services in a cost-effective
manner. Many companies such as
Citicorp, Merrill Lynch and Sears,
make no attempt to disguise their be
lief that telecommunications technol
ogy will play a major part in serving a
constantly changing marketplace.

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Witness the rapid evolution of the
regional, national and, in many cases,
international E F T networks. These
signs indicate that future-oriented cor
porations believe the highway to fur
ther profitability lies in a properly con
structed telecommunications network.
Thus, one can conclude from these ac
tivities that the banking community is
on top of things and the corporate stra
tegic plan is on target.
Even with all this frantic activity,
something still is missing and, if not
recognized, could spell disaster for
companies operating in the banking
industry.

Consumer’s Role Not Defined
Information as a corporate resource
is not a recent discovery. Recall from
your studies of modern economic the
ory that a number of scholars believe
that information deserves to be in
cluded with land, labor and capital as
a factor in the classic definition of the
production function. In fact, a few
economists believe that information
technology already is the dominant
factor in this formula which confirms
the basic forecast of this article. Even
if one agrees with this restated for
mula, the “information economist” has
not gone far enough in describing the
role the consumer will play in forcing
information to become the driving
force in the financial-services indus
try’s production function.
Unfortunately, many economists and
bankers alike are completely unaware
of the powerful forces beginning to take
shape in today’s already unsettled eco
nomic environment. A combination of
events will result in an unprecedented
demand for financial products and
services tailored to the unique needs
and requirements of the individual.
The customized nature of this demand
requires the banking community to
begin immediate development of the
“right” formula for pursuing this new
market.
Deregulation of the financial-serv

ices industry will convert a market
currently dominated by product sell
ers to one controlled by the unique
requirements of the individual con
sumer. A second factor in this transi
tion will be the wholesale shift in re
sponsibility for personal financial
decisions and long-term economic se
curity from the employer and govern
ment agencies to the individual. These
changes will result in a dramatic in
crease in the demand for comprehen
sive product information capable of
being delivered to every consumer.
This trend will culminate in a com
prehensive set of products capable of
satisfying each consumer’s unique set
of financial needs.
The most successful companies will
be those capable of capturing detailed
information about a client’s current fi
nancial position and in turn, using that
data to plan for future needs and ob
jectives. It is important to note that
the limitless combination of personal
desires and financial factors makes each
individual as unique as his or her fin
gerprint.

Creating Economic Roadmap
The goal will be to electronically
capture each client’s “financial finger
print” and use that information in con
junction with cost-effective products
to create a comprehensive economic
roadmap. This strategy will guide the
individual through a constantly chang
ing economic environment. The dis
tinguishing qualities of this advice will
be its technical accuracy, ease of cre
ation, flexibility and timeliness. The
ability to formulate this strategy in an
increasingly cost-conscious environ
ment will require the creation of largescale expert systems connected to the
outside world via a comprehensive tel
ecommunications network.
At the same time new data files of
comprehensive product information
will be created, resulting in a global
clearinghouse of financial products.
With the advent of the personal com
puter and low-cost electronic termi
nals, this information will be accessi
ble by corporations as well as
individuals. Using this network to sat
isfy a unique set of financial needs will

MID-CONTINENT BANKER for O ctober, 1 9 8 6

An Ounce of Prevention

t*ank board letter
To ensure your bank’s good health
and protect your directors and
yourself, a subscription to The Bank
Board Letter is worth a pound of
D&O insurance.
Serving as a bank director “ain’t what it used
to be.”
Regulators expect directors to be more
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make the news. Disgruntled shareholders win
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It’s enough to give your directors that queasy
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No wonder attracting and holding quality di
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Cool your fever with a subscription to The
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An informed director:
| Your best prescription.
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require a sophisticated computer sys
tem capable of linking the consumer’s
financial fingerprint to the expanded
electronic marketplace. Sophisticated
expert systems will use the client’s
profile to project future needs, and in
turn, conduct high-speed reviews of
generic product information. The abil
ity to access this network in an efficient
fashion will be enhanced by a portable
data carrier such as a smart card ca
pable of capturing an exhaustive list of
financial factors. Through the use of
biometrics, financial security and pri
vacy will be controlled by the individ
ual rather than the system.
This com prehensive system will
convert the traditional product-distri
bution network from one dominated
by mass-marketing principles to one
controlled by the unique demands of
the individual consumer. In brief, per
sonalized information will become the
driving force in the financial-services
industry. The fact that this network
will control the distribution of capital
means this revolution will directly af
fect the entire economy with partic
ular emphasis on those in information
processing, com puter systems and
telecommunications. The number of

no-load and low-load products deliv
ered through a totally electronic mar
ket will increase dramatically. Razorthin profit margins will cause ineffi
cient purveyors to disappear.
From a timing standpoint it is im
portant to note that this revolution al
ready is well underway. Many com
modities already trade in global
markets. A rtificial-intelligence sys
tems for accessing large data bases ol
information using such features as nat
ural-language inquiry are near com
pletion. Expert computer systems with
open analytical logic are in place and
connected to data bases of existing
product information. Portable data
carriers in the form of smart cards us
ing integrated circuits and laser tech
nology are available for capturing the
owner’s financial fingerprint. As large
corporations become aware of these
products they will begin to deliver a
vertically integrated list of products
capable of satisfying virtually every
need of the individual consumer.
As this network begins to take shape,
the information broker will replace the
salesperson as the human element in
the distribution process. Product de
sign as well as pricing will be highly

Don’t get swallowed up.
The most tempting targets for takeover attempts are those
financial institutions w hich are basically sound. Fortu
nately, they’re also the most likely candidates for a unique
new form of protection, the Employee Stock Ownership
Plan (E S O P ). To find out more about the E S O P , contact
America’s E S O P specialists
for banks. W e’ll give you
information, without ob
ligation, and in strict
confidence.
BANKING
CONSULTANTS
OF AMERICA

6584 P oplar A ven
O ther O ffices :

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Federal Reserve Bank of St. Louis

38-9990

(901)682-0611

, D allas, W ashington ,
Circle 7 on Reader Response Card

D.C.

personalized with fees being negoti
ated at the time the transaction is com
pleted.
In summary, the shift in responsi
bility for long-term financial security
from the institution to the individual
will cause the economic cushion in the
average consumer’s budget to disap
pear. This, in turn, will accelerate the
demand for more personalized, costeffective products. The results will be
a new formula for corporate survival
focusing on product designs that are
infinitely flexible. This will replace to
day’s mass-marketing strategy where
a small list of static products is com
bined with a large promotional budget
to attract/or retain an increasingly so
phisticated consumer. • •

Banks Institute Programs
To Reduce Loan Losses
A majority of banks have begun pro
grams to reduce loan losses, according
to the ABA’s 1986 Retail Bank Credit
Report.
The report indicates that install
ment loans made at commercial banks
increased rapidly in 1985, along with
delinquencies and losses.
For all types of installment loans by
banks, gross dollar losses were equal
to .53% of total outstanding, an in
crease from .44% in 1984 but lower
than the 1983 loss level of .60%.
Net dollar losses after recoveries for
1985 were .39% of outstandings, higher
than in 1984, when the figure was
.28%, or 1983, when it stood at .36%.
Total outstanding installment debt
was $535.1 billion at year-end 1985,
compared to $453.6 at year-end 1984,
according to the Fed. Commercial
banks held a 45% market share at yearend 1985, compared to 46.1% at yearend 1984. Finance companies in
creased from 21.2% to 22.5%, and sav
ings institutions increased from 8.9%
to 10.4% during the period.
Credit unions, retailers and gasoline
firms lost market share.
For 1985, banks reported average
gross losses of $135,600 on personal
loans, down from $157,000 in 1984.
Approximately three quarters of all
banks reported using a formal program
or policy to reduce loan losses in 1985,
with large banks the most likely to have
done so.
Steps taken to minimize consumercredit losses include tighter loan-ap
proval criteria (reported by three
quarters of all community banks and
more than half the midsized and large
banks) as well as tighter procedures for
internal-loan review (reported by be
tween 70% and 80% of banks of all
sizes).

MID-CONTINENT BANKER for O ctober, 1 9 8 6

Bank Earnings Optimism
The form ula for tom or
row’s success, for stable
or higher earnings, is sim
ply to practice the funda
mentals
By M.E. Bond
President
Borod & Huggins Educational
Services, Inc.,
Memphis, Tenn.

XPERTS D IF F E R in their opin
ions on the condition of earnings
of community banks. Ry measures of
ROA and ROE, community banks have
performed well and often have expe
rienced higher measured returns than
regional or big-city counterparts.
R ecently, however, community
banks have watched a relative decline
in their performance ratios. The re
duction is partly due to the large per
centage of community banks that op
erate in the depressed agriculture and
energy areas. However, the impact of
these segments of the economy is tran
sitory.
The reduction in earnings also is
partly due to more fundamental
changes within the banking industry.
These changes are secular and will
make a more lasting impact than the
transitory changes.
The trend of declining net interest
margins is due to these fundamental
changes. The low-cost, core deposit
base of many community banks has
changed as depositors transfer funds
into higher-yielding deposit accounts.
Community banks also witnessed a
decline in their loan production as
consumer loans, the community bank
er’s staple product, are being shared
with new forms of competition, such
as nonbanks, captive finance compa
nies and regionally credit card oper
ations of larger banks and thrifts.
Also, some community banks have
lost deposits because of declining cus
tomer loyalty. Customer loyalty at
community banks is no longer as in
tense and no longer as tied to com
munity pride, as once was the case.

Even given these changes, how
ever, there is reason to be optimistic
about earnings prospects at many
community banks. The formula for to
morrow’s success, for stable or higher
earnings, is simply to practice the fun
damentals.
F irst, the banker must stay in
formed about the bank’s market and
clients. The banker must stay in front
of changes within the bank’s geograph
ical service area. Many describe this
as “niche playing. ’’ Others describe it
as being responsive to needs, or filling
the personal banking need.
Regardless of the terminology, it is
the community banker’s responsibility
to understand his market and his
clients, to stay abreast of changes and
to practice good banking fundamen
tals.
Another reason for optimism can be
found in bank operations. Community
bankers must learn new ways to lev
erage existing overhead for higher rates
of return to the bank. Looking back to
the more regulated times, bankers had
little incentive to worry about lever
aging overhead. In fact, there was lit
tle incentive at all to worry about over
head.

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The new environm ent has not
changed the bank’s overhead cost —
fixed asset facilities are still used and
still require servicing, and human cap
ital and employee expenses are com
parable to earlier times.
Recognizing this com m itm ent to
overhead, the community banker now
must be attentive and receptive to new
ways to leverage overhead for greater
returns. He should search for ways to
increase the productivity ratios of de
posits, loan portfolios and total asset
size to fixed overhead expenditures.
Bankers who have instituted pro
grams to leverage overhead have dis
covered good results in the bank’s
earnings.
High-performance community banks
have validated this two-part formula.
Yet the records show that many bank
ers have room for more leverage.
In summary, know your markets,
know your clients, practice good bank
ing fundamentals that serve the mar
ket niche and develop strategies to
leverage overhead. This combination
promises new prosperity and higher
returns to the community bankers of
tomorrow. • •

Near-Term Recession Possible?
AX-REFORM legislation could increase prospects for near-term
recession, according to the senior economist at ID S Financial Serv
ices, Inc., Minneapolis.
This opinion is based on the fact that, under current legislation, the
investment-tax credit would be repealed, real after-tax rates would be
higher and corporate financial subsidies would be cut back. In tandem
with budget cuts already legislated, the impact could be a $70-billionplus reduction in the federal deficit in 1987.
This swing to a sharply more restrictive fiscal policy could easily
shave 2% or more from real GNP growth, says William Melton, in
creasing chances of a recession in a major way.
He says ITC repeal will reduce investment spending and consumers
will reduce purchases of durable goods because they will experience
a slight tax increase and lose the consumer-interest deduction.
But Mr. Melton feels the Fed’s response to tax legislation will be a
more accommodative monetary policy, which should mean GNP growth
in 1987 only slightly lower than that in 1986.
Long term, he believes the economic impact of tax reform will be
positive.

Ag Banking Faces Transition
ABA study reveals tactics
bankers should take to
survive crisis

By Jim Fabian
Senior Editor

NEW ABA study is telling a large
group of people where agricul
ture and ag banking are going and what
should be done to return both to a sound
financial footing.
This large group of people includes
members of Congress, the administra
tion, regulators and ag-industry lead
ers — not to mention ag bankers.
The study, called “Transition in Ag
riculture: A Strategic Assessment of
Agriculture and Banking,” was author
ized last year by the ABA’s agricultural
banking division. It was made by John
Hopkin of Texas A & M University.
Preliminary information from the re
port was presented at the Iowa Bankers
Association annual convention in Des
Moines on September 16 and at the
Agricultural Credit Conference spon
sored by the Illinois Bankers Associa
tion in Decatur the following day.
Mike Fitch, chairman of the ABA’s
agricultural bankers division, said the
study “offers the tools needed for de
velopment of sound long-term plan
ning, policies and procedures consist
ent with the new realities for the
agricultural and ag-banking indus
tries. ’ He predicted that the project’s
planning guide “will enable individual
banks to adopt specific strategies con
sistent with their unique situations/
needs.’’
Mr. Fitch is vice president, Wells
Fargo Bank, San Francisco. He ap
peared at the ag-banking breakfast at
the Iowa convention and later that day
at a press conference held in conjunc
tion with the convention in Des Moines.
“The release of this very important
research project illustrates a recogni
tion by commercial agricultural bank
ers that agriculture and its related busi
nesses are clearly not just experiencing

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Alan Tubbs (c.) and Mike Fitch discuss ABA's new ag study w ith member of Iowa Bankers
Association at centennial IBA convention in Des Moines last month.

the usual cyclical liquidity problems
with which we have become accus
tomed; they are undergoing fundamen
tal structural changes in need of basic
re-directions. The study responds to
the reality that ag bankers, as well as
their borrowers, are searching for di
rection on which reasonable plans, pol
icies and projections can be based.’’
He said the report points out that ag
banking must form new coalitions to
control its own destiny by becoming
pro-active in the political process on
behalf of its farm customers, as well as
itself.
The study had not been published
when Mr. Fitch spoke; he touched on
only a few of its recommendations.
“One revelation I consider especially
important is that, contrary to the gen
eral feeling that the demise of the small
independent bank is certain, the re
search suggests that banking deregu
lation and structural changes in agri
culture are, in fact, consistent with the
existence of a large number of different
types and sizes of banks.’
He said that because it’s critical that
everyone understand the fundamental
principle that the need for capital in
agriculture is greatest when the cost/
price squeeze is at its worst, he con

siders the project’s treatment of the
needs for securitization, particularly a
secondary market for farm real-estate
loans, to be especially important.
He quoted from the report: “Banks
will need to materially increase their
capacity and willingness to make farm
real-estate loans”; and “the securiti
zation of agricultural credit provides one
means of access to the nation’s capital
markets.”
“These quotes illustrate the respon
siveness of the researchers to the in
dustry’s pragmatic needs,” Mr. Fitch
said.
Researchers were asked to take the
risk of suggesting what bankers should
do to help themselves rather than
merely passively and reactively ac
cepting legislative and regulatory con
trol of banking’s destiny, he said.
To make sure the planning guide for
individual banks is a usable and prac
tical instrum ent, two independent
bankers (one in Kansas and one in Wis
consin) actually tested it by using it for
their own banks. They told Mr. Fitch
they were so pleased that they ques
tion how others can survive, let alone
prosper, without it.
Mr. Fitch urged all bankers to sub
scribe to the report. They were given

MID-CONTINENT BANKER for O ctober, 1 9 8 6

brochures that gave brief descriptions
of it and how to order it.
He said he considers this research
project to be merely the beginning of
a process, not a document to be read
and shelved. “The ABA already has
formed an industry task force to rec
ommend to legislators and regulators
mechanisms for development of a vi
able secondary market for farm realestate loans,” he said.
Alan R. Tubbs, president, F irst
Central State, DeW itt, la., appeared
with Mr. Fitch at the Iowa conven
tion. He is immediate past chairman
of the ABA ag-bankers division.
He said the study suggests substan
tial changes in the structure of farming
will continue to occur because of re
duced profitability, economies of size
and debt distribution. The study con
cludes that the transition in farm struc
ture will continue to occur with an
exodus of farms in moderate size cate
gories and with an increase in large
and part-time farms.
This structural transition in farming
units will leave an impact on rural
communities, he added. It will change
retail trade patterns to the extent that
more retail trade will be carried on in
towns that the research group refers
to as “regional trade centers.” Smaller
communities will suffer retail sale re
ductions and will need to assess what
kind of community they will become.
Other communities may determine
that they can become regional trade
centers, although such centers will be

limited in number, which means farm
ers will travel further to purchase sup
plies, consumer goods and credit.
This transition will force banks in
rural communities that rely on agri
culture as their base to reassess their
markets. The research group identifies
three types of banks serving the new
agricultural structure and suggests
what they may have to do to remain
competitive.
Mr. Tubbs declared that competi
tion for sound ag credit will remain
intense and the Farm Credit System
will survive and eventually thrive and
be a part of that future. He added that
serious consideration must be given
by the banking community to future
availability of long-term loans and
services now in the planning stages by
the Farm Credit System. “Banking
must develop a game plan as to how
to compete with this new Farm Credit
System and what role the Farmers
Home Administration should play in
the future,” he said.
“This study goes a long way in as
sisting individual banks and the in
dustry plan for the future. It will be a
road map that will be helpful in adopt
ing legislative strategies and provide
assistance to the Congress,” he said.
In a micro-sense, he added, it should
help every bank understand the fun
damental structural changes that are
occurring today and help them assess
their changing market and adopt com
petitive strategies that will ensure suc
cess in the future. • •

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U. S. Ag Efficiency Questioned
HE U. S. is not necessarily more efficient than other countries
when it comes to agricultural production. It produces a glut of ag
products but doesn’t necessarily do it in the cheapest or most efficient
way.
These are the views of Alan R. Tubbs, president, First Central State,
DeWitt, la., and Otto Doering, professor at the department of agri
culture and economics, Purdue University. They spoke recently on
the topic at the Midwest Banking Institute at the University of Min
nesota, Morris. The Institute is sponsored by five state banking as
sociations, including Minnesota and Wisconsin.
Dr. Tubbs pointed out that 63% of all ag debt is held by 19% of the
nation’s farmers. This means many farms are servicing too much debt
and therefore can’t be efficient. The proportion of debt has risen in
recent years as prices on crops decreased because of the glut on world
ag markets.
Professor Doering said technology has had a great influence on ag
riculture. Although technology has made bigger crop yields possible
and shortened some labor tasks, it hasn’t proved economically efficient
in many cases.
Farmers who have taken on large debts because of high-priced ma
chinery and technology while getting low prices for their crops are
prevented from reaching their highest possible economic efficiency
because they are servicing too much debt, he said.

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Reducing Farm-Borrower Debt
Is Critical Issue, Says IBAA’s Olson
IBAA president-elect calls
for concerted effort to
avoid large-volum e debt
forgiveness

By Jim Fabian
Senior Editor

E TIR E M E N T of farm-borrower
debt is a critical issue, according
to Thomas H. Olson, president-elect,
Independent Bankers Association of
America.
Mr. Olson, who also is president,
Lisco (Neb.) State, is concerned that
the U. S. Department of Agriculture
has not agreed to assign payment-in
kind payments to lenders on the same
basis that cash payments are assigna
ble.
Earm-program payments should be
devoted to the maximum extent pos-

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sible to the retirement of debt owned
by those borrowers, he says. “If a ma
jor part of these federal payments is
not used to retire the backlog of ac
cumulated debt, when and how is that
debt going to be repaid?” Payments
for 1986 are expected to be approxi
mately $24 billion, about equal to total
net farm income for the year.
One answer he gives is that much
of this debt may never he retired by
borrowers, forcing them to declare
bankruptcy.
Mr. Olson is concerned that bank
ruptcy legislation in Congress could
turn the Bankruptcy Code into a pro
cedure for forcing collateralized lend
ers to forgive debt in large volume un
der the guise of debt reorganization,
with virtually no attention given to the
capacity of commercial lenders to ab
sorb such loan losses.

A g -d e b t fo rg iven ess
would put a chill on ag
credit — Thomas O l
son.

“I believe this legislation is very
shortsighted, ” he said, “because it will
not serve the real ongoing interests of
either farmers or lenders.’
He added that farmers can’t really
expect to continue their operations
unless they have future sources of op
erating credit. Lenders can’t be ex
pected to extend that credit if they are
frozen into major loss positions on col
lateralized loans with no opportunity
to recapture some losses even when
conditions improve and farm assets
begin to recover in value.
Mr. Olson agrees with Iowa Bank
ruptcy Judge Richard Stagemen who
said he can “think of nothing that would
more quickly put a chill on farm credit
. . . than to impose all debt forgiveness
on an isolated class of creditors.”
Mr. Olson is looking for a way to
make this basic point before the pend
ing bankruptcy bills move further to
ward final enactment. “Somehow, we
need to focus more attention on how
the backlog of unmanageable farm debt
is going to be disposed of. As much as

possible we need to work with farmers
in finding a mutually acceptable way
to resolve this issue,” he said.
It’s imperative that consideration of
the pending bankruptcy legislation be
brought into this broader context, he
added, one in which farmers and lend
ers can work together toward a better
solution.
He lamented that no one seems to
have specific answers to this dilemma.
But pressures are building for some
thing to be done differently in agri
cultural policy, he said, with farm-pro
gram costs ballooning and no progress
being made to expand markets and re
duce surpluses of most commodities.
One idea getting attention: Provide
a virtually open-ended export subsidy
to the major grains, such as corn and
wheat, by applying the so-called “mar
keting loan” to these commodities.
“Under the circumstances, I sus
pect this would greatly escalate federal
costs, but not improve export market
ings measurably, since other exporters
would make every effort to offset re
sulting price reductions,” he said.
Given the huge expenditures of fed
eral funds, Mr. Olson said, “Wouldn’t
it make sense to try to channel some
of those federal payments to retiring
the backlog of unmanageable debt
owed by farmers?”
He thinks there must be a way to
assign at least any additional payments
being made by the federal govern
ment toward repayment of existing
farm debt, with the farmer able to
maintain his farming operations as a
result.
He stressed the point that, as pres
sures mount to again reconsider agri
cultural policy, it’s necessary to get the
debate focused on the backlog of debt
and what can be done about it. That
debate needs to be broad enough to
consider how the whole range of fed
eral dollars is being spent on farm in
come and credit programs.
“And we need a concerted effort,
hopefully involving lenders and farm
ers, to get more of this overall effort
devoted toward resolving the farmdebt backlog,” he said.
“Only then,” he added, “can we look
toward a truly brighter and less ten
sion-ridden future for credit-financed
agricultural production in this coun
try.” • •

MID-CONTINENT BANKER for October, 1 9 8 6

Getting Rid of Bad Apples
•

The banking industry must rid itself of
officers, directors and insiders guilty of
criminal misconduct
By Dr. Lewis E. Davids
Professor Emeritus Finance
Southern Illinois University, Carbondale

N ATTITUDE of ambivalence surfaces when the
topic of criminal misconduct in banking comes
up. No one likes to hear about it, but the press is
reporting on it almost daily in connection with failing
banks.
Throughout the years, vigorous efforts have been
made to hush up any instance of impropriety in
banking, with bank managements taking great pains to
avoid damaging publicity, often at the expense of the
bank and its shareholders.
Present-day examination procedures make cover-ups
more difficult and regulators are ferreting out those
guilty of criminal acts; but the bad apples discovered so
far may represent just the tip of the iceberg.
Insurance and bonding firms have benefitted from
cover-ups in the past because they do not have to pay
off claims if they’re not filed. Yet banks doing the coverups are technically voiding their financial-institutionbond policies.
But someone or something must be the loser from a
cover-up. Banks generally can get some restitution for
an embezzlement, either from the criminal or, not
infrequently, from the criminal’s relatives. Such a result
saves the bank the embarrassment that would occur if
the crime were made public.
But it should be remembered that the whole
structure of banking rests on public confidence in the
banking system. Each criminal act against a bank sets
the stage for erosion of this confidence, should the act
become public knowledge. Rather than take the chance
that such acts will be made public, it behooves bank
management to remove any criminal element from its
ranks.
Years ago when I was a New York City banker, it was
policy to turn down profitable business that appeared to
have originated from suspect sources. We didn’t want
our bank’s reputation to be blemished by someone
being able to say a reputed gangster or drug dealer had
his accounts with our bank. Today many banks accept
deposits with no questions asked and eventually subject
their managers to embarrassment if the deposits in
some manner place the bank in a bad light.
A former Comptroller of the Currency believes bankrelated crime deserves more enforcement attention in
order to ensure the safety and soundness of individual

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institutions and the stability of the banking system.
The Justice Department should be applauded when it
updates its systems so it can cross check names to
determine if banking-industry criminals are involved in
more than one bank and to permit the department to
do a better job circulating knowledge of bank criminals
among other enforcement agencies.
Regulations tend to make banks cautious about
blowing the whistle on criminals in their midst. Such
was not the case in the past, when it was bank policy to
cooperate with law-enforcement agencies and other
bankers by providing information about individuals in
situations pertinent to banking. Fear of litigation has
prompted bank attorneys to caution against sharing of
information about suspected criminals. This can lead to
the compounding of criminal acts against banks.
A middle-level officer at a bank began to stipulate
loans after spending too much time in Las Vegas. He
stipulated that the borrower make payments directly to
the officer. When bank management discovered the
situation, it fired the officer, but covered up the crime.

Recent actions by regulators and others
indicate that the punishment for criminal
conduct on the part of bankers is beginning
to fit the crime.
That same officer subsequently became the founding
executive of a national bank and the Comptroller of the
Currency was ignorant of the officer’s past record, so it
chartered the institution.
When the first bank received inquiries about the
officer from the Comptroller, the bank’s legal counsel
advised that the bank provide only the barest
information. It told the agency that the officer had
worked at the bank from date X to date Y, but it didn’t
tell the agency that the officer had been fired for
stipulating loans. This policy was followed “to protect
the privacy of the individual, which was how legal
counsel interpreted regulations.
The strongest deterrent to criminal misconduct by
bankers is the swift and sure prosecution of potential
violations of criminal law, say regulators. And they are
beginning to follow this policy after years of benign
neglect.
It’s thought that about half of the current bank
failures are results of insider abuse. Recent actions by
regulators and others indicate that the punishment for
such conduct is beginning to fit the crime.
But the fact remains that much grief could be avoided
if bank managers took action to rid their institutions of
criminals before things reached the stage where
regulators are obliged to prosecute after the bank has
failed. • •

Loan E v a lu a tio n

Preparing for the Exam
ergy. If possible, values for incometions as possible in examiners’ minds
producing collateral should be related
as they make their review.
to existing cash flow, and assumptions
Credit and collateral files must be
should conform to the market. To sup
documented completely before an ex
plement valuations, documentation
amination. All updated and necessary
documents, including current finan supporting cash flow from collateral
cial statements (balance sheets and in should be available; i.e., rent rolls and
By William L. Perotti
production-run data.
come statements), call reports, status
and Joseph B. Nester
Another step in the preparatory
reports, approved loan m em oran
process is to develop a problem-loan
dums, etc., should be placed in the
file. A commitment to keep these files list to be shared with examiners. At a
HE OVERALL tone and result of current and complete on a continuous minimum, this list should include non
a regulatory examination may be basis dispels the appearance of con accruing loans, renegotiated loans,
determined by how examiners per
fusion and disorganization that can re loans delinquent 90 days or more and
ceive the quality of your bank’s lend
ing function. The key to a successful
examination often is your bank’s prep
aration.
With the ratio of problem banks to The lending-function evaluation is a subjective review,
experienced examiners increasing al and if a bank can document its preparation efforts for
most daily, regulators now rely more
the examination, it can help regulators formulate their
and more on internal bank loan-review
systems to detect and deal with po conclusions.
tential problem loans. These systems,
which must be effectively developed
before an examination occurs, will lead
to a smoother examination for the bank.
all other internally identified problem
sult when a credit file is completed
Examiners have been prompted by during the course of the loan discus loans. Along with this list, additional
the Comptroller of the Currency and sion. Such a situation only adds to ex information about these loans should
state banking commissioners to work aminer uncertainties as to the overall be provided to examiners — why a
with banks so banks can work with their capabilities of management.
loan is a problem, what is being done
customers. To support this environ
Documents should not only be cur to resolve or, at least, improve a given
ment, you’ll want to incorporate sev rent, but realistic. A balance sheet situation and a probable tim etable
eral steps into the examination prep based on equities without correspond when action is expected to occur. Ex
aration process.
ing debt (direct and/or contingent) is aminers are more understanding if you
First, it is important to anticipate of little value when evaluating the can both identify the problem and
what the examiners’ needs and ques quality of an obligor’s indebtedness.
demonstrate that you have a handle
tions may be. Don’t wait until these The borrower’s cash flow must be well on it.
needs and questions are expressed by defined and understood by bank staff.
Today, more than ever, examiners
the examining team. Waiting until the Presently, the perceived attitude ol expect bankers to perform other es
loan discussion comes up to provide examiners is that cash flow repays a sential evaluations, such as identifying
information to an examiner may re loan while collateral reduces the bank’s concentrations of credit, and to react
duce credit given for new data. From potential loss exposure.
accordingly. Credit concentrations, by
the examiners’ viewpoint, information
Further support for a loan is pro their very nature, are dependent on a
that should be in the files should not vided by collateral valuations that are
common component, and a deterio
have to be requested. If you anticipate current and realistic, given existing ration in that component could have a
that examiners may question a certain market conditions. While a collateralnegative effect on every loan in that
item, information to respond to the dependent loan still may be classified concentration.
question should be contained in the substandard, portions of it may avoid
Concentrations are defined by ex
file. The key is to create as few ques- being moved to “doubtful” or a worse
aminers as obligations, direct or in
rating if the valuation is current. It is direct, of the same or affiliated inter
Mr. Perotti is vice president/asset review, Culessential that current collateral val ests that represent 25% or more of a
len/Frost Bankers, Inc., and Mr. Nester is as
uations be obtained for all loans, es bank’s capital structure. However,
sistant vice president/asset review, Frost Na
pecially those for real estate and en each bank needs to define its own contional, San Antonio.

Good preparation for an
examination often is the
key to a successful one

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MID-CONTINENT BANKER for O ctober, 1 9 8 6

centration levels, depending on its
marketplace. For example, in today s
environment, loans secured by office
building construction in a depressed
area such as Houston that exceed 5%
of capital might be considered as con
centrations.
Bankers should establish and iden
tify concentrations and recognize the
inherent risk that exists in them. Pro
viding this information to examiners
demonstrates that the bank knows and
understands the composition of its loan
portfolio.
Another area that is being closely
scrutinized by examiners is borrow
ings by insiders (directors, executive
officers and principal shareholders).
These borrowings will be examined
carefully, thus, credit and collateral
files should be complete. To avoid po
tential problems ranging from classi
fications to civil money penalties, fi
nancial data, collateral valuations and
all necessary loan approvals must be
included and clearly documented.
To further demonstrate the bank’s
willingness to identify and solve po
tential loan problems, management
should develop its own list of credit
and collateral exceptions. This list, up
dated monthly, can be created when
adequacy of the bank’s loan files is re
viewed. These exceptions should be
segregated by the handling officer so
someone can respond to each excep
tion.
After developing and implementing
the above procedures, management
should carry the loan-evaluation proc
ess one step further. Internal proce
dures that ensure that the allowance
for possible loan losses is maintained
at a sufficient level to absorb the loss
inherent in the loan portfolio must be
developed. Regulators have stated that
directors and bank management are
responsible for establishing written
policies and procedures to evaluate
loan-portfolio risk, to ensure timely
charge-off of loans and to properly re
flect estimated future loss in the al
lowance. Regulators feel that the ab
sence of satisfactory controls to ensure
that the allowance is maintained at an
adequate level may constitute an un
safe and unsound banking practice.
Before starting the evaluation proc
ess, banks must disregard two guide
lines used in the past: the historical
benchmarks that the allowance for loan
losses should equal 1% of total loans
and that arbitrary reserve allocations
of 10% for substandard credits and 50%
for doubtful credits are sufficient.
Presently, the method preferred by
regulators to evaluate the loan-loss re
serve has three primary components.
The first is based on estimating the

amount of potential loss applicable to
specific, adversely classified loans. For
classified loans where no loss estimate
can be made, the second component
— an estimated loss ratio for each type
of loan based on the preceding five
years, or a shorter period if considered
acceptable — is used.
The final element relates to nonclassified loans. With this method, the
potential loss reserve is estimated bv
using the average ratio of nonclassified
net charge-off loans to nonclassified
loans for the past five years.
Any examination can be successful
if the bank staff demonstrates it has
identified its loan problems and has
attempted to solve them, while ac
knowledging that some potential loss
exposure exists. The lending-function
evaluation is a subjective review, and
if a bank can document its preparation
efforts for the examination, it can help
regulators formulate their conclu
sions. • •

• Joan P. Cronin has been named
general counsel/secretary for the St.
Louis Fed. She succeeds F. Garland
Russell Jr., senior vice president/general counsel/secretary, who retired.
• Kevin M. Blakely has been ap
pointed director for special supervi
sion at the Office of the Comptroller
of the Currency. He heads the office
that monitors troubled national banks.
• Charles F. Hoffman has been
named director of the ABA Stonier
Graduate School of Banking, succeed
ing William H. Baughn, who served
as director for 20 years.

REGENCY
RECRUITERS, INC.

For
Banking Personnel

• Susan Goold has been promoted
to director of information services by
the National Automated Clearing
House Association. Barbara Hill has
been named manager of meeting serv
ices.

or a
New Banking
Position
From Management Trainee to
President. Call the banking
specialists.

BANK POSITIONS
Jr. Operations — $15MM rural bank
Comml. Loan — large suburban bank
AgrlLoan — $40MM community bank
Second Officer — $30MM Ag Bank
R.E. Loan — AVP $200MM bank
Comml. Loan — $25MM suburban
AgriLoan/Operations — $30MM rural

$20K
$40K
$36K
$35K
$30K
$30K
$33K

Carol Park

Diane Evans

816/842-3860

These and additional positions located in
midwestern states. All inquiries confidential.

ALL FEE PAID
NATIONWIDE
AFFILIATIONS

TOM HAGAN & ASSOCIATES
of KANSAS CITY
P.0. Box 1 2 3 4 6 /2 0 2 4 Swift
North Kansas City, MO 6 4 1 1 6

816/ 474-6874

s________________ i ' i i i

SERVING THE BANKING INDUSTRY
SINCE 1970

1102 G R A N D A V E .
K A N S A S C IT Y , M IS S O U R I 6 4 1 0 6 -2 3 8 7

Circle 17 on Reader Response Card

Circle 25 on Reader Response Card

BankPositions / BankersAvailable

CONSUMER/REAL ESTATE LOAN OFFI- LOAN OFFICER — Michigan banker handles
CER — Illinois bank. River city of 8,000. You commercial and ag loans. Ref. says, “He turned
will love the location. 3-5 yrs. exp. $23-$27,000.
LENDER — W. Illinois. Clean! One classified
loan last examination. Do you like to hunt and
fish? If so, you will fit right in. 2-5 yrs. exp. $23$27,000.
COMMERCIAL LENDER — E. Minn. bank.
“We pay to keep,” says employer. College town.
$25-$32,000.
AG CREDIT REVIEWER — E. Missouri. 3-4
openings. Evaluate quality of loans. $25$33,000.

MID-CONTINENT BANKER for October, 1 9 8 6

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

things around in this bank.” BS Bus. $33$35,000.
FORMER BANK EXAMINER — Strong at
credit analysis. Manages rural bank. “Learns
easily . . . gets along with others,” says ref. BS
Finance. $30-$35,000.
SENIOR LOAN OFFICER — 14 yrs. ag credit
with same employer. “Thorough, detailed, per
sistent,” reports ref. $32-$34,000.
AG/COMMERCIAL LENDER — Five yrs. bank
exp. Good collector. “Very good credit ana
lyst,” says ref. BS Ag $25-$28,000.

anncareers, inc.
_J

Jean 712/779-3567
Massena, Iowa 50853

Sandl 515/394-5827
New Hampton, la. 50659

AG BANKING PERSONNEL SPECIALISTS

Circle 1 on Reader Response Card

Use the Reader Inquiry Service on facing page to obtain further
information about the products reviewed on this page.

• M a r s h C h a lk b o a r d C o . is offering
its contemporary conference cabinet
designed to complement the modern
office environment. It features bullnose edges and m easures (closed)
4 8 " x 4 8 " x 4 V4w. Cabinet doors open to
give a 48"x96" visual communication
work center.

• K r u e g e r , I n c ., offers add-on arms
for its 2005 task chair that convert the
chair to an armchair model for use by
managers/supervisors. The arms per-

For information, circle 116

ifi

• M u r a ta B u sin ess Sy stem s offers
its ImageMate® facsimile machine. It
transmits a page to another Murata
machine in less than 18 seconds and
can perform up to 10 delayed dialing
commands, according to the firm. The
compact machine measures 16"x5".

For information, circle 123

* *

• P a n e l C o n c e p ts has introduced its
Series One Operational Chair that’s
tailored to support users of video-dis
play terminals and other keyboard
tasks. It has a medium-low back and
gives concentrated postural support
along with comfort duringextended
periods.
For information, circle 118

* *

• F in a n c ia l T e c h n o lo g y , I n c ., of

fers Banc Planner, which is available
in three levels. Level I provides for
interest calculations, rate-sensitivity
analysis, “what if” simulations and
management reporting. Level II pro
vides for A/L management and gap
analysis, funds pools and a fundsmatching matrix, plus Level I fea
tures. Level III provides more so
phisticated A/L management features,
including amortization and repayment
assumptions, ARMS, re-invested in
terest and others.

• D u r h a m M a n u fa c t u r in g C o . , is
offering two policy/security boxes with
three-digit combination locks that can
be set without tools. Custom name
plates or silk-screened personalization
are available.

For information, circle 117

• D ie b o ld , I n c ., has introduced a
new design for vault doors that pro
vides b etter security than conven
tional doors, according to the manu
facturer. The Rotary W edge-Lock
Vault Door is made of a specially for
mulated material that is reinforced with
steel. It’s 16" thick and has high p.s.i.
compression strength. A wedge device
prevents the door from being forced
open.

For information, circle 124
ffC

mit chairs to be positioned close to
desks or workstations.
For information, circle 121

• G e n e r a l P la stics C o r p . is offering
single-face Pine-Glo wreaths for build
ing-front displays for the holiday sea
son. They are available in eight, five
and three-foot circum ferences and
come in various colors and feature red

5{C

• H a m i lt o n S a fe offers modular
vault panels said to be light enough to
be installed on the upper floors of many
buildings. The panels feature 15-, 30and 60-minute U. L. ratings against
forced entry. The vaults are relocata
ble, according to the manufacturer.
For information, circle 125

• M M F In d u s trie s is offering a new
Key Control Catalog. The catalog is
designed to aid the buyer of key-con
trol products by illustrating how the
various systems operate. The line in
cludes single- and two-tag systems in
cabinet, rack, keyboard and drawer
styles.
For information, circle 126

• R e p u b lic M o n e y O r d e r s In c . of

• T r ito n S y s te m s , In c . offers ATM
jr.® , a series of desk-top demonstra
tors that duplicate the operation of a
number of ATMs on the market. They
are designed to bring live ATM dem
onstration capability to the desks of
customer sales reps.

ornaments, ribbons, bow and centerpiece candles and bells. Wreaths for
pole mounting also are available.

fers its electronic Republic Money Or
der Dispenser. The device is designed
for use in supermarkets, bank lobbies,
chain stores and malls. Features in
clude increased speed/accuracy; elim
ination of in-store and back-office pa
perwork; and prevention of loss
through a built-in security system that
disables the unit if unauthorized use
is attempted.

For information, circle 120

For information, circle 122

For information, circle 127

For information, circle 119

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

MID-CONTINENT BANKER for O ctober, 1 9 8 6

Reader Response Page
A d v e rtise r

Page No. Circle No.

AgriCareers, Inc.
Aluminum Case Co.
Austin & Associates, Inc., Douglas

47
43
19

1
2
3

Baker & Co., James
Balboa Insurance Group
Bank Board Letter
Bank Building Corp.
Banking Consultants of America
Boatmen’s National Bank, St. Louis
Brandt, Inc.

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13

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5

Centerre Bank, St. Louis
Chase Manhattan Bank
Commerce Bank, Kansas City
Data 3 Computer Corp.

28-29
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9
43

October, 1986

A d ve rtise r

Page No. Circle No.

Financial Advertising Agency
First Lease & Equipment
Consulting
HBE Bank Facilities Corp.
Hagan & Associates, Tom
Industrial Life Insurance Co.
J. P. Consulting, Inc.
MPA Systems
McCoy Myers & Associates
North Central Life Insurance Co.
Plus System
Protective Life Insurance Co.
Regency Recruiters, Inc.
Ryan, Beck & Co.

—

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MID-CONTINENT

BANKER

FREE, FAST
INFORMATION

Please send me more information. .. .

Advertiser Information
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Fi motion

Title

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New Product Information
State

Act While
the
Opportunity
Is Fresh

Phone (

101
110
119

Zip

)

103
112
121

Bank Asset Size:

Reason for Your Inquiry

A. [ ] Over $1 Billion

G. [ ] Immediate Need

B. [ ] $500 Million-$1 Billion

H. [ ] Future Need

C. [ ] $250-499 Million

104
113
122

105
114
123

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124

I. [ ] General Interest

D. [] $100-249 Million

[ ] Make sure I receive MID-CONTINENT BANKER each

E. [ ] $50-99 Million

If you w an t m ore in

102
111
120

month

F. [ ] Under $50 Million

[ ] Send me advertising information

formation about products
and services advertised in

in/OR

MID-CONTINENT
BANKER, circle the ap
propriate numbers and
return

the

p o s t-p a id

MID-CONTINENT

BANKER

Please send me more information. . . .

cards at right to MCB.

Advertiser Information

W e will put the advertiser
in direct contact with you.
Be sure to include your
name and address

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

FREE, FAST
INFORMATION
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Name________________________ _— — ---------Title________ Function----------------------------------Bank___________________________ —-----------

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New Product Information

Address-------------------------------------------- — -------

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C ity ______________________ State______Zip
Phone (

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111
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103
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104
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105
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106
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) ------------------------------------------—-------

Bank Asset Size:

Reason for Your Inquiry

A. [ ] Over $1 Billion

G. [ ] Immediate Need

B. [ ] $500 Million-$1 Billion

H. [ ] Future Need

C. [ ] $250-499 Million
D. [] $100-249 Million
E. [ ] $50-99 Million
Under $50 Million

I. [ ] General Interest
[ ] Make sure I receive MID-CONTINENT BANKER each
month
Send me advertising information

A dvertiser

Page No. Circle i

32
37
24
34

Schooler & Associates, Don
Sheshunoff Co.
Son Corp.
Swords Associates, Inc.

27
28
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Corning Events
Oct. 25-29:
Oct. 26-30:
Nov. 16-19:
Nov. 16-19:

ABA Convention, San Francisco.
ABA National School on Human Resources,
University of Colorado, Boulder.
BAI ATM9, Electronic Delivery Systems Con
ference, Bonaventure Hotel, Los Angeles.
BMA Trust and Personal Financial Services
Marketing Conference, Sheraton New Orleans
Hotel.

ABA National Ag Bankers Conference, Opryland Hotel, Nashville.
NACHA Corporate Cash Management Semi
Dec. 3:
nar, Airport Sheraton Grand Hotel, Dallas.
Jan. 27-30
ABA National Security and Risk Management
Conference, Sheraton Harbor Hotel, San Diego.
BMA Community Bank CEO Seminar, Mar
Feb. 15-18:
riott’s Mountain Shadow Resort, Scottsdale, AZ.
BMA Electronic Banking Product Strategies
Feb. 22-25:
Conference, Phoenix Hilton.
March 8-11: ABA National Conference for Community Bank
ers, Hyatt Regency and Hilton, Phoenix.
March 15-18: NACHA Annual Conference, Intercontinental
Hotel, San Diego.
April 1-5:
Independent Bankers Association of America
Convention, Marriott’s Orlando World Center.
April 9-12:
Louisiana Bankers Association Convention, New
Orleans Hilton.
Oklahoma Bankers Association Convention,
May 7-9:
Shangri-La Resort, Afton.
Alabama Bankers Association Convention, Co
May 11-14:
lonial Williamsburg, Williamsburg, VA.
Nov. 16-19:

NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES

BUSINESS REPLY MAIL
FIRST CLASS

PERMIT NO. 79

ST. LOUIS, MO

POSTAGE WILL BE PAID BY ADDRESSEE

MID-CONTINENT

BANKER
Attention: Reader Service Dept.

408 Olive Street
St. Louis, Missouri 63102

NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES

BUSINESS REPLY MAIL
FIRST CLASS

PERMIT NO. 79

ST. LOUIS, MO

POSTAGE WILL BE PAID BY ADDRESSEE

MID-CONTINENT

BANKER
Attention: Reader Service Dept.

408 Olive Street
St. Louis, Missouri 63102

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Bank Capital Available.
• Public or Private
• $1,000,000 Minimum Amounts
• Equity or Equity Related Instruments
• Quality Management, Asset Base
and Track Record
• $100 Million Minimum Asset Size

For further information contact:
Fenwick Garvey, Executive Vice-President

Ryan. Beck & Co.
Investment Bankers and Bank Consultants
80 M a in S t. West O range, N J 07052 (201) 325-3000
Philadelph ia, PA (215) 568-4433 / In dian ap olis, IN (317) 846-7200
D allas, T X (214) 744-5090 / N e w York, N Y (212) 349-6080

https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

Boatmen’s Ted Smothers.
Operations Assistance
Overline Assistance.
Loan Participations.
Investments.

Boatmen’s Vice President Ted Smothers working
with Bob Menz, Chairman and President o f The
First National Bank o f Highland. Whatever your
correspondent needs, Boatm en’s has knowl
edgeable people to assist you. Call Ted Smothers.
He can help.

C orrespondent Banking Division

THE BOATMEN'S
NATIONAL BANK

OF ST LOUIS
3 1 4 -4 2 5 -3 6 0 0

Circle 8 on Reader Response Card

Member FDIC