As community banks grow, they face the dilemma of generating fee income and developing expense controls without giving up their image as specialists in providing service.

It's a tough job. All banks - large and small - must stress fee income and expense control in a world in which borrowing short and lending long or borrowing long and lending short are policies too dangerous to be relied upon for bottom-line success.

Summit Bank in New Jersey for example is trying to carry water on both shoulders - raising noncredit income and cutting non-credit expense while still providing service, through analysis of the demography of its territory. In effect, it is trying to learn who should be coddled, whose accounts must stand on their own, and what services can be sold that can generate income.

They use a geographic information system containing census data on demographics, product potential, customer locations, competitive data, and more. All the information is broken down by block groups of around 400 households apiece. And some of the conclusions they have found are eye opening.

*In one community, the bank found that one-third of its customers are over 60, yet when the entire market area was analyzed it showed the median age was 44. This led to a different approach to marketing services.

*In many instances, the bank found that two or more Summit branches were competing for business from the same customer base. This led to a reorganization of the retail and business banking divisions around the market served by the bank.

The consultants who dug up the census and block data were Peter Louderback and John Landgraf of Spatial Decision Management, a marketing and consulting firm with offices in Nantucket, Mass., and Orlando. And Pete admits that any bank can get this census information for a small sum. Where he feels his firm adds most value is in putting his data on income, age, number of children, employment status, etc., on an overlay map so that marketing officers can see where new bank strategies can be useful and where they would be a waste of time and effort.

Pete also hopes to develop a program so that other banks can quickly transpose market information such as census data to overlay map form. He would install this program and teach the bank how to use it.

But what does the bank do once it has the data?

Paul Kalamaras, executive VP of Summit in charge of the retail sales group (the branch network) is spearheading this effort and admits that internal data are often as useful as census data in projecting marketing goals.

For example, Summit found that at some branches, one-quarter of the customers have moved out of the area and even out of the state. These people need a different type of marketing program than those who come into the lobby.

Banks are still faced with an age-old problem - 80% of the people provide little or no profit to the bank while 20% provide 80% of income. How can we know who the 20% are and reward them appropriately.

In answering that dilemma, the marketing people must keep in mind that they need to reward the top accounts with something special. Yet the managers of branches, which Summit now is calling "stores" instead of branches to emphasize their selling job, are judged by the fee income they generate. So a good customer may be placated with a no-fee account or lower interest cost on loans, yet the store managers may object to an exception policy on fees since they are judged by fee income.

Stephen T. Emr, senior vice president in charge of marketing at Summit, is thinking of a two-tier policy: stressing efficient banking for the 80% by encouraging the use of ATMs and phone banking, and treating the 20% to selectively waived fees, lower interest costs, discounted loan rates, special servicing and sales stations in the lobby, and other means of keeping their balances high.

Communication is the key: Let the high-balance accounts know they are special, so they will want to maintain high balances to continue getting special treatment.

In sum, today few bank platform employees or tellers know who are the top customers, yet something has to be done to make both the customers and the employees know these customers are important to the bank.

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