ABA Banking Journal - November 2013 - (Page 47)

Pass the aspirin The Banker-to-Banker exchange The Headache: When dumb competitors bring down the market We've been hearing bankers complain about dumb competition-other financial institutions taking dumb risks or engaging in dumb pricing just to put business on the books. We asked prescribers what they were doing about it. Some had remedies. Some said, "Send a solution-please!" You can send ideas to scocheo@sbpub.com Remedy 1: Out-of-this-world competition, circa 2008 Richard J. Krauland, president and CEO, Farmers & Merchants Bank of Western Pennsylvania, N.A., $424.6 million-assets, Kittanning, Pa. The NASA Federal Credit Union-headquartered in Washington, D.C., which is more than four hours away from us-has begun running a radio ad blitz in southwestern Pennsylvania, promoting first mortgage loans with a zerodollar down payment (i.e. 100% financing) and no private mortgage insurance. Its website (www.nasafcu. com) contains the same product promotion. The ad closes with the statement that ". . . you don't have to work for NASA to get your mortgage from NASA FCU." As far as I know, there are no NASA facilities or employees anywhere near Pittsburgh, Pa. This type of unsafe and unsound lending practice is a repetition of the mistakes that lenders made and which came to light in 2008 when the whole mortgage debacle occurred. What is even more galling is that this is a non-taxpaying federal credit union. What's your take on this new lending-product promotion from NASA Federal Credit Union? It would be nice if "Aspirin" could somehow draw attention to this situation to the examiners at the National Credit Union Administration. In the meantime, I would love to hear from other bankers on how to fight this. Remedy 2: Talk to the customer Deborah Cole, president and CEO, Citizens Savings Bank and Trust Co., $93.2 million-assets, Nashville, Tenn. Our bank has experienced other financial institutions engaging in pricing techniques just to put business on the books, and, in some cases, the business did move to the other institution. The most successful approach for us entails remaining in constant contact with customers. If we get a heads-up that another bank has approached a customer, we immediately ask that customer for the particulars and attempt to enlighten her on just what the proposal contains-other than a lower rate compared to her current loan transaction. In most cases, where we are aware of the other offer, we have succeeded in retaining the customer. Unfortunately, in some instances, all the prior work that we committed to the customer just will not win out over unreasonable pricing. There are some rate structures that just cannot be matched. Our principal concern for the bank is safety and soundness. Remedy 3: Welcome customers back Paul Siebenmorgen, president and CEO, Farmers and Merchants State Bank, $922.5 millionassets, Archbold, Ohio. Recently, we lost a deal to a thrift that priced the loan at a variable rate: 30-day LIBOR plus 160 bps. On the day we learned about it, the rate would have been 1.94%. We told our customer that we would like to do business with him, but to take the bargain-basement rate while he could-and we would still be here for him when the thrift came to its senses. Who knows how this will work out in the long term. We also have seen a rash of credits to closely held companies where credit facilities are being offered without guarantees. It seems excessively risky to me. We have lost some accounts because of this, yet most we keep because the borrower is willing to accept the risk. Remedy 4: Deal vs. relationship Frank Campbell, president and CEO, Pilgrim Bank, $170.4 millionassets, Cohasset, Mass. We have seen aggressive pricing that might not be considered commensurate with risk in two areas. This type of aggressive pricing first started to show up on commercial real estate deals. In addition to longer terms (ten-year fixed, for example), there are banks offering near-conforming rates on CRE loans. More recently, something that has been documented in local publications is jumbo pricing below conforming loan pricing. This might become even more prevalent if and when the government-sponsored enterprises lower the jumbo limits. We still try to be competitive, but we have lost several deals to lower pricing in certain areas of the market. We also have been more willing to negotiate with our existing November 2013 | ABA BANKING JOURNAL | 47 http://www.nasafcu.com http://www.nasafcu.com

Table of Contents for the Digital Edition of ABA Banking Journal - November 2013

Chairman's View
Editor's Column
The Economy
Picture This
Bank Notes
Will farmland prices hold up?
Tech Topics
What you do, amplified
Inside Farmer Mac
Meeting the challenge of identity theft
Compliance Clinic
Compliance Inbox
Pass the Aspirin
ABA At Your Service
First Person

ABA Banking Journal - November 2013

http://www.nxtbook.com/naylor/BAKS/BAKS0515
http://www.nxtbook.com/naylor/BAKS/BAKS0415
http://www.nxtbook.com/naylor/BAKS/BAKS0315
http://www.nxtbook.com/naylor/BAKS2/BAKS1014
http://www.nxtbook.com/naylor/BAKS2/BAKS0914
http://www.nxtbook.com/naylor/BAKS2/BAKS0814
http://www.nxtbook.com/naylor/BAKS2/BAKS0714
http://www.nxtbook.com/naylor/BAKS2/BAKS0614
http://www.nxtbook.com/naylor/BAKS2/BAKS0514
http://www.nxtbook.com/naylor/BAKS2/BAKS0414
http://www.nxtbook.com/naylor/BAKS2/BAKS0314
http://www.nxtbook.com/naylor/BAKS2/BAKS0214
http://www.nxtbook.com/naylor/BAKS2/BAKS0114
http://www.nxtbook.com/naylor/BAKS2/BAKS1213
http://www.nxtbook.com/naylor/BAKS2/BAKS1113
http://www.nxtbook.com/naylor/BAKS2/BAKS1013
http://www.nxtbook.com/naylor/BAKS2/BAKS0913
http://www.nxtbook.com/naylor/BAKS2/BAKS0813
http://www.nxtbook.com/naylor/BAKS2/BAKS0713
http://www.nxtbook.com/naylor/BAKS2/BAKS0613
http://www.nxtbook.com/naylor/BAKS2/BAKS0513
http://www.nxtbook.com/naylor/BAKS2/BAKS0413
http://www.nxtbook.com/naylor/BAKS2/BAKS0313
http://www.nxtbook.com/naylor/BAKS2/BAKS0213
http://www.nxtbook.com/naylor/BAKS2/BAKS0113
http://www.nxtbook.com/naylor/BAKS2/BAKS1212
http://www.nxtbook.com/naylor/BAKS2/BAKS1112
http://www.nxtbook.com/naylor/BAKS2/BAKS1012
http://www.nxtbook.com/naylor/BAKS2/BAKS0912
http://www.nxtbook.com/naylor/BAKS2/BAKS0712
http://www.nxtbook.com/naylor/BAKS2/BAKS0612
http://www.nxtbook.com/naylor/BAKS2/BAKS0512
http://www.nxtbook.com/naylor/BAKS2/BAKS0412
http://www.nxtbook.com/naylor/BAKS2/BAKS0312
http://www.nxtbook.com/naylor/BAKS2/BAKS0212
http://www.nxtbook.com/naylor/BAKS2/BAKS0112
http://www.nxtbook.com/naylor/BAKS2/BAKS1211
http://www.nxtbook.com/naylor/BAKS2/BAKS1111
http://www.nxtbook.com/naylor/BAKS2/BAKS1011
http://www.nxtbook.com/naylor/BAKS2/BAKS0911
http://www.nxtbook.com/naylor/BAKS2/BAKS0811
http://www.nxtbook.com/naylor/BAKS2/BAKS0711
http://www.nxtbook.com/naylor/BAKS2/BAKS0611
http://www.nxtbook.com/naylor/BAKS2/BAKS0511
http://www.nxtbook.com/naylor/BAKS2/BAKS0411
http://www.nxtbook.com/naylor/BAKS2/BAKS0311
http://www.nxtbook.com/naylor/BAKS2/BAKS0211
http://www.nxtbook.com/naylor/BAKS2/BAKS0111
http://www.nxtbook.com/naylor/BAKS2/BAKS1210
http://www.nxtbook.com/naylor/BAKS2/BAKS1110
http://www.nxtbook.com/naylor/BAKS2/BAKS1010
http://www.nxtbook.com/naylor/BAKS2/BAKS0910
http://www.nxtbook.com/naylor/BAKS2/BAKS0810
http://www.nxtbookMEDIA.com