COMMUNITY BANKS in the United States are spending more than ever before on information technology - and have been increasing staff at a pace unseen in many years.

In 1994, technology spending by community banks - institutions with less than $1 billion of assets - will grow 6.5% over last year, about the rate of growth posted by the commercial banking industry as a whole, according to an annual American Banker/Tower Group survey.

The anticipated technology bill for commumty banks this year- $1.33 billion - is just a fraction of the $16.3 billion budgeted by all commercial banks in 1994.

But while community bank technology budgets continued to grow at a rate well above inflation, the increase this year was just under half that posted in 1993.

On the jobs front, community banks expect employment in the technology area to jump nearly 11% in 1994, the survey found. For the industry as a whole, staff levels have hardly budged in three years.

But while small banks have been embracing information technology with bigger budgets and larger staffs, bankers and industry observers report some uncertainty about how new systems fit with the community bank mission to provide customer service superior to that of their bigger competitors.

Matthew Finn, a community bank analyst with Bums, Pauli & Co. in St. Louis, said, "I think the current crop of senior [community] bank management - who are definitely going to get involved anytime you're spending millions of dollars - I just don't know if they are convinced" spending larger sums on information technology will be cost - effective.

Mr. Finn recalled a conversation with a banker who was deciding whether to simply update the bank' s existing system or replace it with a more sophisticated and expensive one.

"They really don't know," said Mr. Finn. "Because it's hard to get good data [about which systems are] really effective."

"You reach a point in technology as a community bank where the public doesn't need all the bells and whistles. You're not going to offer derivatives. You're not going to offer interest rate swaps," said Patti S. Nadler, a professor of finance at Rutgers University and a follower of the community banking market. "If you can make those statements balance, and get those decisions fast, and have a central file so you know who your good customers and bad customer are, that's all you need."

Mr. Finn said the concern about changing technology leads many small banks to turn to outsourcers to provide data processing services.

"Outsourcing, to some extent, removes the burden of having to worry about the pace of technology change," he said.

Mr. Nadler agreed, noting that "I don't see anything that makes one bank' s DDA any different from any other' s. So why do you need to have each one reinventing the wheel?"

Still, community bankers interviewed said they are keenly aware of the importance of information technology in remaining competitive and 'independent in an industry that has been shrinking. Last year, the number of community banks in the United States declined bv nearly 5%. to 10,575.

And many community banks are still catching up on technology investments that were delayed during the recession of the late 1980s and 1990s.

Phil K. Livingston, president and chief executive of Citizens National Bancshares in Hammond, La., said: "We are trying to automate as many processes in the system as we can."

In the last year, $200 million - asset Citizens National replaced an aging computer system with an AS/400 computer from International Business Machines Corp. "We didn't want to buy a new mainframe without buying the most up-to-date software," said Mr. Livingston.

The bank has automated loan processing and purchased software to speed up the internal audit process. "We are now utilizing PCs at almost every workstation," he said.

Mr. Livingston said that technology has helped reduce the number of employees from 135 in 1986 to 105 today. "We are managing about 25% more in assets with significantly fewer people," he said.

Like many banks, Citizens National was hit hard by the recession that rolled across Louisiana and Texas. In 1990, the bank's return on assets fell to 0.23%, and there were asset - quality problems.

Still, Citizens National was more fortunate than many banks in the state. "We had some 70 banks that actually failed out of a total of just over 300," said Mr. Livingston.

"Most of the late 1980s were spent resolving asset - quality problems, downsizing, closing branches, protecting capital," he said. "The economics really would not enable most banks to invest in the hardware and the technology we all knew was necessary."

By 1993, the ROA was up to 1.70%. With the brightened financial picture and economic outlook, Mr. Livingston said, "We are in a position to get to looking down the road a bit."

Similar changes have been taking place at Tri - State Finance Corp. in Denver.

Richard C. Tucker Sr., chairman and chief executive, said the company also recently installed a AS/400 and a personal computer network.

"What we've done is to staff all of our tellers and all of our officers with PCs that are on a network right into the mainframe," he said. "The networking itself was a very expensive process."

Mr. Tucker said the $100 million - asset bank has spent more than $500,000 on systems in the last 18 months.

"There is just no way to keep up with the competition and service the customer and increase your base if you don't have the hardware and software ."

Mr. Tucker said Tri - State's recent technology investments were aimed at catching up on aging systems. "We haven't done anything since about seven years ago when we instituted a new computer system."

Although the system was upgraded two years ago, officials decided new technology was necessary.

"I think for small community banks like ourselves, in order for us to continue to compete... you can't sit back anymore. You have to be a leader."

But one area where Mr. Tucker is reluctant to use technology is in manning the phones. Although the bank has looked at automatic voice - response systems to handle customer inquiries, it has so far rejected the option.

He said that cost is not an issue; one vendor offered a package for $20,000, an affordable price.

But he worries that the technology may diminish the close level of personal service that is the hallmark of community banks.

"We get so turned off even with voice mail," he said. "We are not going to get [a voice - response system] until we are forced into it." Mr. Finn, the Bums, Pauli analyst, said such issues are of great concern to community bankers.

He noted that community banks are wrestling with the issue of maintaining good customer service at branch offices while simultaneously moving toward more convenient alternative delivery channels like automatic teller machines and telephone banking.

He added that community banks, although many now have central information files tracking their relationships with customers, have not installed cross - selling tools in great numbers.

"I don't think people are fooled" by bank personnel attempting to sell them additional products with a patina of friendliness, he said. "They know that Mr. Big Bank doesn't know who the hell they are from Adam. They are just reading that off. It's kind of like those 'friendly' calls you get from credit card solicitors. Not only do they not know who I am, they really don' t care."

Mr. Nadler noted that one of the most important things to customers is having their bank know who they are.

But he added that while community bankers want to maintain that level of personal contact, many are moving to outsourcers for back office processing.

"The great strength of community banks is service, not the data processing side."

The survey found that community banks are spending more on third - party data processing. This year, such spending accounted for 19% of all technology budgets, up from 11% last year.

A study by M. Arthur Gillis, a bank technology consultant in New Orleans, found that 45% of small banks use service bureaus for basic dataprocessing.

First Farmers and Merchants National Bank, Columbia, Tenn., is in the process of convening its data processing to M&I Data Services Inc.

"For us to stay where we felt like we had to be, it would take an organization like M&I to stay in the forefront," said Waymon L. Hickman, president and chief executive of the $450 million asset bank.

"I can't say it's cheaper, but we feel like it gives us the capability we need," he said.

Mr. Hickman noted that First Farmers' market is extremely competitive. Among the large banks in the area are units of SunTrust Banks Inc., First Tennessee National Corp., and NationsBank Corp.

But community bankers agree that the increasing availability of information technology at more affordable prices gives them an opportunity to remain competitive with their larger rivals.

American State Bank in Sioux Center, Iowa, for example, sends 98% of its customers imaged check statements.

"We're just able to do so many more things with our customers on the deposit side than we were able to do before," said Beverly J. Jensen, vice president and cashier.

The system has enabled the bank to lower the number of overdrafts and decrease its technology staff, she said.

Many other banks, however, have been holding off on investing in imaging technology. Tom Kessler, operations officer at Home State Bank in Crystal Lake, Ill., said officials have studied imaging but decided it is too expensive.

But the $250 million - asset bank has invested little in new software, Mr. Kessler said. But it has increased the number of PCs to gain efficiencies.

"We shared computers over the years. Somebody needed Lotus, so we would have a machine with Lotus on it. And we were running back and forth using this one machine," he said.

Today, Home State' s four banking offices have about 23 PCs for platform and administrative personnel.

But as community banks have invested more in technology, they have also had to invest more in training and worker support. Indeed, that was the fastest area of growth in technology staffs according to the survey - increasing by nearly 35% between 1993 and 1994. Beginning in 1992 and projecting through 1997, bankers reported that user support and training staff will grow at an annualized rate of 10%.

"The point is that if you're going to have more automation of routine services, the people who are actually doing the contact have to know a hell of a lot more" about the technology they will be using, said Mr. Nadler. "So you need that training support"

Mr. Tucker said State has had to increase its training budget to get its staff prepared to use the new systems.

But even banks that have not increased staff or training budgets say they have had to deploy workers who are more technically skilled.

"We have to have a little higher level of intelligence running [the system]. We are probably having less people and paying them more," said Ms. Jensen.

As community banks wrestle with technology issues, they say they are committed to providing good customer service.

"There is no substitute for the warmth, and the feeling, and the love you get from a one-on-one response," said Mr. Tucker.

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