7 ways to keep costs down

Saving money is always an appealing prospect for businesses of any kind. But for community banks, operating in an industry facing unprecedented consolidation, it’s crucial. Here are some top tips from community banks that are pinching pennies by making better staffing decisions, using technology more wisely, scrutinizing their utility bills—and more.

By William Atkinson

With the community banking world rife with mergers and acquisitions, banks that want to remain independent need to become lean and mean. One of the best ways to do this is to become more profitable. There are, of course, two main ways to accomplish this: increase revenue and/or reduce expenses.

Sadly, not all community banks have the opportunity to increase revenue, especially those that are located in regions of low or no economic growth. But all banks can take steps to reduce expenses.

There is another reason to manage expenses diligently. With growing competition from other financial institutions and fintech companies, managing costs and becoming as efficient as possible is crucial if you want to stay in the game.

We talked to community banks that place a strong emphasis on efficiency and cost management. Virtually everything these banks do is done with one eye on cost management. They also know what not to do–which activities would only increase costs and reduce profits.

“When I first became a CEO, someone told me, ‘Once you let the cost genie out of the bottle, it is impossible to put it back in,’” says James Beckwith, president and CEO of $1.14 billion-asset Five Star Bank in Sacramento, Calif.

Here are some things to consider as your community bank embarks on (or continues) its cost-management journey in search of a bright future.

1. Assess work processes and workflows

“We are always looking for ways to make our work processes more efficient,” says Thomas G. Caldwell, president and CEO of $1.1 billion-asset The Middlefield Banking Co. in Middlefield, Ohio.

“Employees are encouraged to suggest ways to do this, and part of this is because they are on an incentive program. The more profitable we become, the more incentives they can earn.” Croghan Colonial

Bank in Fremont, Ohio, also asks employees to help brainstorm efficiencies. “We began to seek employee ideas as a way to automate even more workflows that, in the past, had been done on paper,” says Stacy A. Cox, chief operating officer and senior vice president of the $830 million-asset bank. “Now, as a result of employee input on all of these automated workflows, every interaction between our branches, our main office and our operations center is done digitally using business process management software.”

Croghan Colonial Bank’s efficiency drive doesn’t stop there. “We measure our performance metrics regularly to make sure we are offering high-quality products and services, but in the most efficient way possible,” Cox says. So, as the bank continues to grow, instead of asking team members how many staff members the bank should add, management asks them to consider technologies and other ways to accomplish more. “As a result, team members are able to see a direct link between their work and the bank’s success,” Cox says.

2. Be open-minded about technology

Obviously, it makes no sense to implement a technology simply because it is available. Banks should assess all of the processes and activities in which they currently engage, and then determine if there are certain technologies that will not only make these processes and activities more efficient but also more cost-effective. Each bank will find a unique set of technologies that will work for it.

“We have all of the ‘bells and whistles’ of the latest technology that benefit us, including online banking, remote capture, ACH, internet banking, lockbox and mobile banking,” says Stephen Haggard, president and CEO of $192 million-asset Metro Phoenix Bank in Phoenix. “These streamline all of our processes and also eliminate the need for customers to have to drive to our location if they don’t want to do so.”

3. Keep employee roles flexible

Traditional employers train employees to perform specific jobs that are often limited in scope and responsibility. Community banks that focus on efficiency, on the other hand, create environments in which employees can perform functions on any given day based on what needs exist at that time.

“With a small staff here, everyone wears multiple hats and has experience in the other departments in the bank,” says Haggard. This, he has found, encourages empowerment and autonomy, which leads to even more efficiency.

“We try to streamline everything we do,” says Walter Birdwell Jr., chairman of the board of $586 million-asset Citizens Bank in Carthage, Tenn. “We do everything with as few people as we can. This includes allowing people to do double duty.” Almost everyone at the bank, according to Birdwell, has two or more jobs, which allows the bank to have fewer employees than a lot of other banks its size.

“We do everything with as few people as we can. This includes allowing people to do double duty.”
—Walter Birdwell Jr., Citizens Bank

Gerard Nalezny, chairman and CEO of $250 million-asset Verus Bank of Commerce in Fort Collins, Colo., is another believer in the value of flexible employment. “Every one of our employees is cross-trained on multiple functions,” he says.

4. Use vendors wisely

Without vendors, no community bank could survive. However, it is important to determine when it makes sense to use a vendor for a certain function, and when it makes more sense to handle the function in-house. If a vendor can do the job better and less expensively, it would rarely make sense for a community bank to create and manage such a function internally.

“Taking advantage of the services that large partners can provide helps us save on expenses,” says Stephen Varckette, president and CEO of $410 million-asset Andover Bank in Andover, Ohio. “For example, we outsource our fraud program on the debit card side. Some of the fraud software that is available these days is doing an amazing job of identifying and preventing fraud, which saves us quite a bit of money.”

“We don’t purchase things we don’t need,” says Verus Bank of Commerce’s Nalezny. “However, when we find that things would cost more in-house, we outsource these. For example, we outsource compliance.” The bank is also careful in how it manages vendors. “We carefully negotiate contracts, such as our health care, and we are very disciplined when we bid stuff out,” he says.

Cox of Croghan Colonial Bank agrees. “We go through vendor contracts line by line or hire attorneys to do that,” she says.

“We were able to save about 20 percent on our D&O insurance premiums by bidding out vendor services.”
—Thomas G. Caldwell, The Middlefield Banking Co.

The Middlefield Banking Co. also takes a fine-toothed comb to vendor management. “We always make an effort to bid out our needs, but we don’t automatically stay with the same vendors year after year,” says Caldwell. “Recently, for example, we were able to save about 20 percent on our D&O insurance premiums by bidding out vendor services.”

5. Manage utility costs

In the past, most community banks considered electric, gas and water utility expenses as simply a necessary cost of doing business. Today, they still are, but more banks are taking time to make a serious assessment of energy conservation and energy cost-management opportunities. Some banks are embracing solar power, for example. In fact, for banks looking to make a real dent in expenses, utility costs may be the first place they should look.

And there are numerous opportunities to consider. “We keep energy costs down overall by going through an energy broker, rather than buying power directly from the local electric utility,” says The Middlefield Banking Co.’s Caldwell. “In addition, as we do renovations to our facilities, we make sure that the lights are on sensor systems, so that they do not go on unless and until someone enters that specific area.”

6. Keep your focus tight

While this option isn’t always an appealing one for community banks, some have found that focusing on a niche is not only professionally rewarding but also financially prudent.

“We set out in 2007 to be a commercial bank, keeping our focus narrow right out of the gate—commercial lending, commercial real estate construction and treasury management,” says Metro Phoenix Bank’s Haggard. “These were the areas we felt we were good at and where there was room for us in the market. We knew very early that we could not compete in the retail or consumer space.”

As a result of this focus, Metro Phoenix Bank doesn’t have to dedicate additional resources to other lines of business, including the compliance burden that some of these other lines of business would require, the brick-and-mortar that would be needed for those other lines, and the staffing. “We just have one branch, and we have a very small staff,” Haggard says.

The bank also doesn’t waste a lot of time on deals in which it knows early on that it won’t get to the finish line. “With the experience that our people have, we can determine very quickly which direction we need to go,” says Haggard.

Five Star Bank is another bank with a specialized focus. “We have always been a highly efficient bank, and the main reason is our customer base,” says Beckwith. “We are a business bank, so we have a lot of larger customers. We don’t spend a lot of money on promotion, but we do a lot of one-on-one customer engagement.” He acknowledges that the bank’s office hours are limited (9 a.m. to 4 p.m. Monday through Friday) but says this doesn’t limit customer service. “We also outsource almost everything that we can, so we don’t have to create and maintain the infrastructure and staff in-house for those functions,” he says.

Five Star looks to technology as another way to remain efficient as foot traffic decreases. Currently, about 70 percent of the bank’s transactional business is handled on its mobile and internet platform, and the bank continues to push mobile apps.

Prime Alliance Bank in Woods Cross, Utah, is another bank with a niche focus. “We have only one location, we specialize in commercial lending, and we gather the majority of our deposits online,” says Jan Allen Ackley, executive vice president and chief credit officer of the $350 million-asset community bank. “Since we only serve one market, we don’t need a large staff that would need to be in place to service other types of customers. We make sure all of our staff are highly skilled, and we don’t have a lot of departments in the bank.”

7. Pick up pennies

While there are some major areas that community banks can investigate for cost-saving opportunities, some community banks find that looking at everything, regardless of how insignificant it may seem at first, can pay dividends. “Our main focus is to keep overhead as low as possible, and that involves a lot of little things,” says Middlefield Bank’s Caldwell.

“A friend of mine who was a guide on Denali [the highest mountain peak in North America] told me that the reason people die on Denali is because of a pebble in their shoe,” says Verus Bank of

Commerce’s Nalezny. When it comes to improving efficiency at the bank, Nalezny has found that there is no single thing that is most important. “We are always looking for ways to do things a little bit better,” he says. “In business, you are always either picking up pennies or losing them. We are always focused on picking up pennies.”

Time: the other kind of savings

One bank using technology to create efficiencies is $6.6 billion-asset Tompkins Financial Corporation in Ithaca, N.Y. “We knew that our small-business customers were interested in greater speed, convenience and efficiency in applying for loans, and we wanted to add that capability,” says Neena Miller, executive vice president and chief credit officer. The bank selected Mirador’s digital lending platform, which allows it to make small-business loan decisions in 24 hours or less.

The modular technology lets customers select the kind of loan they need and plug in their information. Tompkins VIST can then analyze the application data faster with good results.

“According to the Cleveland Federal Reserve, the average small business typically spends about 30 hours applying for a loan,” says Trevor Dryer, CEO of Portland, Ore.-based Mirador.

“Our process takes them, on average, less than 10 minutes. The application completion rate is about 60 percent, which is roughly double the industry average.

“When we surveyed our bank customers, they told us they save an average of 69 percent of the time that they normally spent on loan applications,” says Dryer. “One reason for this is that we have a rigorous prescreening process that weeds out the deals that the bank would never do.” The other reason is that the automated process reduces the time required for closing and compliance, which is digital rather than manual.

Dryer has found that some community banks are concerned that this technology reduces or eliminates the personal relationship. However, he says, a platform like this can actually free up more time for a banker to provide advisory and other services to small-business customers, rather than being bogged down with paperwork.


William Atkinson is a writer in Illinois.