Robert L. McGoffin is preaching his own brand of gospel to bankers: Pennies really do add up.
The Scottsdale, Ariz., bank consultant and vice chairman of the $828 million-asset HNB Corp. in Arkansas City, Kan., says banks can significantly pad their fee income simply by implementing "fractional pricing." For example, instead of charging customers $29 for covering overdrafts, HNB charges $29.37.
"The rule of thumb is, for every $100 million in assets a bank has, fractional pricing can typically bring in about $100,000 a year," Mr. McGoffin said last week at the Independent Community Bankers of America's conference in Las Vegas.
Speaking to a standing-room-only audience, he offered a number of other suggestions for boosting fee income. His ideas included assessing "exit fees" on commercial borrowers who move their business elsewhere; charging prospective customers for loan applications and reimbursing them if their loans are approved; and maximizing collections on foreclosed properties or repossessed cars or equipment by selling them on its Web site through an eBay-like auction.
With rising interest rates and fierce loan competition squeezing net interest margins, bankers are continually looking for ways to boost fee income.
Mr. McGoffin is a longtime banker and consultant. In 1996, while with Alex Sheshunoff Management Services Inc. of Austin, he developed an executive education program for Louisiana State University's Graduate School of Banking.
Roger A. Brown, the chairman and chief executive of Home National Corp. of Thorntown, Ind., said he invited Mr. McGoffin to sit on its board three years ago to help devise strategies to improve the earnings and profitability of its Home National Bank.
"We've had some growth in the last several years, but we needed to put some discipline in the way that growth impacts our earnings," Mr. Brown said. "Bob came on the board and started making recommendations right away that have really helped."
Among Mr. McGoffin's other ideas: using fees as screening devices. He said that charging for loan applications, for example, can not only increase income but also weed out applicants who use terms of an approval to shop for better terms elsewhere.
Waiving a fee has its place too, and not always for the best customers. Banks should consider foregoing the exit fee when an unprofitable customer seems headed for the door, he said.
"Sometimes it's all right if a customer pays us off and leaves - if they're not living up to their part of the bargain" by depositing funds or using another product in addition to a loan.
