Community banks explore new services as loan biz languishes
NEW ORLEANS (AP) — Community banks find themselves in a revenue pinch with interest rates on loans generating razor thin profit margins and regulatory limits on how they can generate cash. Factors that dictate the price of borrowing money remain stable, forcing banks to get creative to bolster income.
Increasing account or transaction fees could start a wave of customer defections, so bankers are now looking to offer or expand value-added services such as treasury management, remote deposit capture and health care consulting and charge for them. Such options, they say, justify and offset the cost involved.
“There are a lot of different levers you can pull until the interest rates become profitable,” said Ron Samford, president and CEO of Metairie Bank and Trust.
Metairie Bank began offering remote deposit capture services that let businesses deposit checks at the end of each day using a check scanner that plugs into a personal computer.
It also launched the fraud detection feature Positive Pay for its commercial customers. The service matches the account number, check number and dollar amount of each check against a list of checks previously authorized and issued by the company.
“You can get the entire business relationship, your (remote deposit capture) capabilities, deposited pay . You’d like to have all your commercial customers using those,” Samford said. “You charge for those.”
Metairie Bank, like most banks that offer remote deposit capture services, doesn’t charge businesses for the technology itself. Instead it charges a fee each time it is used. Likewise, the cost of Positive Pay is passed along to customers.
Samford said commercial customers with $500,000 or more in their accounts recoup most of the fees attached to such services through an earnings credit rate. An earnings credit rate is the interest a bank pays on customer deposits and is usually tied to the 13-week Treasury bill rate. Rates for earnings credit are very competitive among local community banks that want to grow their commercial customer base, Samford said.
Metairie Bank grew its assets to $356.6 million for the first six months of 2013, compared with $340 million during the same time period in 2012.
Gulf Coast Bank & Trust President and CEO Guy Williams said the bank has no intention of raising fees on existing services to make up for loan revenues. The last time it raised fees was two to three years ago, he said.
“Unless all of the competitors start increasing fees, I don’t see that as a great strategy,” Williams said. “We’re looking for more people rather than milking the ones we’ve got.”
Gulf Coast is trying to grow its customer base in treasury management, insurance and retirement products. Its assets reached $981.6 million for the first nine months of this year, up from $926 million for the same span in 2012.
While Bank of America and other national institutions roll out transaction fees for consumer services such as remote deposit capture via smartphone, community banks are keeping those services free. Gulf Coast began offering a free remote deposit capture app last year and does not charge for transactions.
Hibernia Bank will offer a similar application in the first quarter of next year, President and CEO A. Peyton Bush said. The bank hasn’t made a decision about whether to charge for the service.
Bush said Hibernia is focusing on increasing its commercial lending portfolio rather than adding new services to generate income. The bank’s net income sank to $3,000 in the third quarter, down from $47,000 during the same period in 2012.
Bob Taylor, CEO of the Louisiana Bankers Association, said that value-added services such as remote deposit capture and treasury management don’t generate enough income to overcome drops in loan demand. Banks have to launch these new services to meet the needs of their customers, he added, but they aren’t big income generators.
“I just don’t think that that’s where the bank is going to prosper and succeed,” Taylor said. “The bottom line is making loans.”