Community banks have plenty of options in today's rapidly changing computing environment. The tough part is selecting the right one.

As never before, community banks are relying on their computer systems to compete with larger banks.

Thanks to small systems, such as personal computers, institutions with $100 million or less in assets are gaining operational capabilities that were once solely the domain of large banks. This is enabling small banks to offer many of the same services as their bigger brethren.

But long gone are the days when a community bank took care of its processing simply by contracting it out to a service bureau. The computer revolution has changed all that. Personal computers are bringing banks of all sizes the ability to hand-pick whatever systems best meet their needs--and in many instances, they're doing it at prices that are far lower than what a service bureau charged.

That's the good news. The bad news is that choosing the right system is becoming more difficult every day. The computing landscape is changing so rapidly, it's enough to make any banker dizzy.

For community bankers, choosing computer technology has taken on the semblance of a high-stakes poker game. They never know which card computer makers are about to deal, but the fate of their business is riding on how they bet. This has shaken the stability of computer customers the world over.

Personal computers are in the midst of perhaps the most significant transition in the computer industry's history: The existing hardware and software standards defined by the original IBM PC are waning. For more than a decade, processors were almost uniformly supplied by Intel Corp., and the software operating system was Microsoft's MS-DOS.

But both companies are facing increased competition. IBM is part of a joint venture with Apple Computer Inc. and Motorola Inc. that has manufactured the Power PC microprocessor. This alone is a significant threat to Intel's hegemony. Moreover, a host of companies, led by Hewlett-Packard Corp., Sun Microsystems Inc. and Digital Equipment Corp. have been cutting the costs of their Unix workstations, which use Reduced Instruction Set Computer--or RISC--processors. With the price cuts, workstations have been forcing their way into markets that for years have been primarily served by PCs.

Not only are the RISC processors a threat to Intel, but the workstation's Unix software operating system is a challenge to Microsoft's DOS. Microsoft itself is migrating away from DOS. Its next version of its Windows software, 4.0 or Chicago, will be a full-fledged operating system. Plus, the software giant's Windows NT operating system has been out for a year. And of course, IBM itself has the OS/2 system.

What does all this mean to a community bank? All of these operating systems are better suited than DOS to the complicated financial calculations performed by most banks and are well within the budgets of community institutions.

And yet there's a Catch 22 with this wide array of choices. Although all of these manufacturers are well-known firms, banks can't blindly assume that any or all of these products will be around in five or 10 years. Should a bank purchase a microprocessor and operating system that are later discontinued, that bank will be saddled with a computer system that becomes steadily more expensive to maintain and more out of date.

"The problem you face today in the PC world is you're forced to place a bet," says David Slider, vice president for Systematics Information Services in Orlando. "One of the problems of pushing your chips out on the table and betting them all on OS/2 or Unix or Windows NT is that there's a big possibility you'll be wrong."

Even if the bank makes the right systems' choice, it won't be able to savor the decision for long. Unlike just a few years ago, banks can no longer expect their PCs to last even five years before they're out of date. "Traditionally, bankers have said they've wanted to keep a system for five to seven years without making any changes to it," says Robin Smith, senior vice president, FIserv Inc.'s CBS Division. That's not realistic in today's environment.

So the next major PC purchase becomes critical for community bankers. They may be looking to put core applications such as demand deposits and general ledger accounting on PCs. "The PCs are getting faster, and the prices are coming down," says Alfred Leist, chief executive of Apple Creek Banking Co., a $43-million bank in Apple Creek, OH, which has eight personal computers in its main office and one each in its 10 branches.

Nonetheless, some community banks aren't buying new computer systems even when their current ones are antiquated. FIserv's Smith says research reveals that only 7% of community banks change their processing environment each year. That means large numbers of community banks are pushing their computer systems beyond their usefulness.

Larger banks have a similar problem, if only to a lesser degree. First Western Bancorp., a $1.4-billion-asset institution based in Pittsburgh, never makes massive changes in its PCs. But a bank even of First Western's size has more leeway in buying new computers and operating systems. "We don't make an initial big investment," says Thomas O'Shane, CEO of First Western. "We try to stay with latest technology, but run (the computer) for the full life of its capability."

Holding Back

Even with all the new developments, many small banks aren't sold on the PC as it is today. Some say that the PC still has a ways to go before they will consider expanded use of the technology. "One of our concerns with DOS and Intel chip technology is memory management," says Carolyn Spicer, senior vice president with The State Bank in Fenton, MI. "Any improved technology that would overcome these limitations, we would consider."

There also may be valid non-technological reasons for avoiding making computer decisions. For example, a bank anticipating a merger with a larger competitor won't spend money on a computer upgrade. (Of course, if merger plans fall through, the equipment is outdated and now the bank is at a big disadvantage.)

Despite their use in banking, PCs are still mostly relegated to peripheral tasks. Even at small institutions they have made little headway into core bank applications such as demand deposit account processing, general ledger accounting and audit and control. Even though the raw horsepower of their central processors now rivals that of mainframes, PCs still fall short of larger systems with functions such as storage-device management, memory management and communications. That limits their ability to run core banking applications.

A full expansion into core applications by PCs seems a long way ahead. "We have been hearing about PC-based systems for core applications for 10 years now," says one vendor. "And yet, when you look at any market data, it indicates that less than 1% of the market is trying to run core applications on PCs."

That fact alone illustrates how much further PCs have to go before they assume a major role in core processing. Community bankers could initiate the introduction of PCs into banking's heart and soul by deciding first which system they want.

Unfortunately, it's still a roll of the dice from then on.

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