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Bank Operations Profile: United Bankers Inc., Waco, TX Holding company finds DP life easier, more profitable with its own center By Mark E. Dixon, field editor
"We're getting state-of-the-art service, and we're keeping a lot of money in the holding company that used to go to outside vendors," says James L. Richards, president of United Data Services, the only non-banking subsidiary of the $1 billion-asset company. When the venture was launched in February 1983, United Data converted each of the three banks which the holding company then owned. since then, United Bankers, Waco, has acquired an additional nine institutions and the data processing division has converted five of them. Three of the other four employ their own in-house data processing operations; the fourth used an outside service and is the next institution scheduled for conversion. "(Converting) banks with their own operations is low priority," explains Richards. "It's the banks that are spending money for the service that we want to get on-line." The eight institutions which United Data now serves once collectively paid about $500,000 annually to vendors for data processing. They now pay "a comparable amount" to the new division, although United Data itself is not profitable. The costs of hardware and software, says Richards, have temporarily eclipsed the subsidiary's income. The cost was not negligible -- about $1 million, plus the renovation of United Data's leased site, a shed-like building along the highway which once housed a linoleum dealership. ("The holding company wanted it well hidden," said Vice President Bart Townsend. "Nobody in the banking business is showing off their DP centers anymore.") Uses IBM hardware United Data uses Systematics software and IBM hardware. The latter includes:
Because al processing is done remotely, eight dedicated phone lines link United Data with the individual banks. The cost for this varies with the distance. The member bank in Woodville, TX, is 200 miles away, while United's Waco affiliate is only four and can literally be seen from the front door. However, all such lines average about $4.40 per mile per year, says Richards. Service on these lines has been adequate although the telephone company breakup did create some headaches when, in 1984, United Data was converting a bank in Garland, TX, to its system. "Basically, (the utility) got behind on is installations," Richards explains. "So we had to rely on dial backup. We had two long-distance phone calls a day, each eight hours long." The phone bill for the three-week period in which the utility was catching up was $6,000. Not all banks are equally equipped. In the Dallas area, the member banks in Garland and Mesquite do not have check processors, so couriers carry checks to the affiliate in nearby Commerce which does. "It's an economy move," says Richards. "When the banks are close together, we try to combine functions." The Garland and Mesquite banks, however, do have CRTs, which allow them access to Waco's central computer. For the most part, however, United Data has eliminated the members' reliance on couriers -- an asset both to bank officers who worry about the security of all that paper and to the operations people who had to meet the couriers' early deadlines. Most of United's member banks which used outside processors previously had courier pickups between 4:30 and 5 p.m. Although processing of the checks and other material did not usually begin until between 6 and 8 p.m., at least an hour was necessary to transport the paperwork to the data center. "Now, they're just punching it in all day long and they have until 7 p.m. or so to have it finished up," Richards explains. Processors of checks have even longer -- until midnight for those institutions which have processors on their premises. "It gives everyone a much wider window." Neither Richards nor Parker L. Boyd, senior vice president, controller of the United Bank of Waco, could recall any disaster having struck paperwork enroute. Still, the reduction of traveling paper is a relief to some officers. "It's something you always think about," says Boyd. Allow time to convert United Data allows plenty of time for conversions. Currently, three are scheduled for 1986: one in February, another in May and the third in September. ("We try to stay away from the end of the year," says Richards. "With all the year-end paperwork, it's too much to handle at once.") Each of the upcoming conversions is a pending acquisition. Preparation for conversion begins about 60 days ahead with a series of two- or three-day sessions at the Waco processing center. Each session covers one of five DP functions -- demand deposits accounts (DDAs), general ledger, accounting, commercial loans and installment loans -- and bank employees attend only those sessions which cover their areas of responsibility. "At some of the smaller banks, the same people will attend more than one session," explains Richards. In all, these sessions take up to three weeks. About 30 days ahead, United Data employees go to the site and help bank staffers apply what they've learned. Essentially, this consists of running "parallels," Richards' term for using the old and new systems simultaneously. This, he says, is when the differences -- and in some cases, the superiorities -- of United Data's system become apparent. United's service is most superior when compared with that received from a processing bank. According to Richards, most such banks use one DP system for themselves and another for client banks, which are, after all, usually competitors. "You don't get the bells and whistles," he explains, noting that reports are especially hard to obtain. The Federal Reserve Board, for instance, requires a Large Bank supplement report on loans from most banks with assets of more than $500 million. "Most smaller banks don't need it, although the holding company does," says Roberts. "But (the processing banks) won't make it available. Or, if they do, it's at quite an additional expense." Needless to say, United's banks have ready access to such information. Other differences are neither good nor bad, but accounting for them can complicate the conversion process. Something as simple as the calculation of interest on a savings account, for instance, is done differently on different systems. "Take a savings account on which there is interest due of $10.14 + 3/4," says Richards. "Some systems -- most systems, actually, ours included -- round up, to $10.15. But some round down." Spread that across all savings accounts at a converting bank and employees would consistently find discrepancies of a few dollars between each system's version of events. Operations employees must account for every penny of the difference before they can move fully to United's system. Fees can be a problem
United Data Vice President Beth Kasner praised the system for promoting thoroughness and responsibility among lower-level operations employees. "There is a tendency for people who are just scratching a piece of paper to send it through even if there is a problem," she explains. "On the terminal, they can't do that because it will come right back. It's their problem." At the United Bank of Waco, Boyd says t he most valuable aspect of the new system had been that it enabled his institution to track the maturities and volumes of its assets. "For instance, with the current (low) interest rates, most of our customers are not investing in long-term certificates of deposit," he explains. "Most of them are short." "What we need to do in this situation is match up our loan side. We don't want a bunch of five-year-maturity loans when our CDs are going to mature in sex months." United's pre-conversion DP system did not readily offer that information, he adds. According to Boyd, who has been involved in the conversion of several banks in addition to his own, the most difficult parts of a conversion are checking and savings accounts. "Installment loans are a snap, but the others have a lot more variables: service charges, minimum balances, different methods of interest payment, ledger balances." The stickiest part, however, may be weaning the bank away from the former vendor. Some are cooperative and others not. "Processing banks are the easiest," Boyd says, "especially if they have some other ongoing relationship with your bank that they want to maintain." Since most conversions occur at the end of a contract, cooperation can be especially valuable if the departing bank wishes to maintain partial service temporarily, or the entire service as a backup. "In our case, the (processing bank) did not make us sign a new contract," he says. "It just maintained the service at the same fees in a sort of gentleman's agreement." Non-banking vendors, on the other hand, have less incentive to be nice. "Many of them just tell you to be off entirely by the end of the contract," says Boyd. "When that happens, a bank has no alternative but to convert fast." Bank Systems & Technology* / December 1985 (*previously, Bank Systems & Equipment)
 Mark
E. Dixon
757 Upper Gulph Road
Wayne, PA 19087-2022
USA
610-971-0649
dixon_mark@verizon.net
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If
you look at data processing as a commodity -- like apples -- it's easier to
understand why the holding company of 12 Texas banks set up its own data
processing division. Like a chain of grocery stores buying its own
orchard, United Bankers Inc. turned the acquisition of a costly, but essential,
service into a profit generator -- and is getting better "apples" in
the bargain.
"The configuration has been modified a
couple of times, but not too much," Richards says, noting that the current
mainframe replaced an IBM 4341 L9 because of its greater capacity and faster
speed.
Fees for automated teller machine service can
present a similar problem. Some services tote charges day-by-day; others
don't indicate any fees until the end of the month, when they suddenly
"appear."