ABA Banking Journal - February 2008 - (Page 40)

RETAIL BANKING places. “Deposit gathering,” she says, “will be the primary driver of earnings in 2008.” Irrational pricing The market for deposit pricing was especially turbulent in the early part of 2007 and has settled down since. Consultant Bird describes prices as steady “but not yet rational.” Thomas Kohlmann, chairman, president, and CEO, of $1.4 billion assets Suffolk County National Bank, Riverhead, N.Y., agrees. “The liquidity issue is part of the problem facing the industry,” Kohlmann says. “The untenable rate-setting practices of some institutions are making things difficult,” he adds. He notes that his bank, despite its status as the second-largest independent commercial bank headquartered on Long Island, has only experienced a modest deposit growth in the last year. Kohlmann explains that most of the deposit growth comes from business customers and that his bank has kept pace with recent service and technology changes, offering net deposit capture in recent months as one example. Tied to that business niche, Suffolk County faces three distinct markets. The first is in the western end of Long Island, which is primarily industrial and commercial. The second is the South Fork of the East end, whose fortunes are linked to bonus income earned by high-net-worth professionals from the New York financial markets. The third comprises the more agricultural communities of the North Fork. A sometime borrower of the Federal Home Loan Bank, Suffolk County National, which has relied on its network of 27 offices to do business, is developing an internet site that it may launch as early as the end of the first quarter as a sort of low-key supplemental funds gathering mechanism. “This isn’t anything that we will promote in a big way,” says Kohlmann. “Some that know us well would consider the internet project out of character, but it will be another source of picking up funds,” he notes, adding,“we don’t think of using the internet as a big shift in approach or values; it’s more like a tactical decision.” 40 FEBRUARY 2008/ABA BANKING JOURNAL Time for a new engine? In the short-run, sub-prime reverberations are partially to blame for the current situation. Countrywide, for instance, had—prior to the acquisition announcement by Bank of America—been trying to shore up its balance sheets by flooding cyberspace with comparatively high-rate offers. A few who spoke to ABA BJ described these actions with the phrase, “zombie mortgage lender,” referring to those who price CDs and other accounts “There are many ways to make money in banking— on fees, spread, and investments. Recent events should force more bankers to really consider both sides of the balance sheet” —Alan Friesen, Haberfeld Associates at high—some think untenable—rates in an attempt to meet short-term objectives. (This was a variation on the term “zombie thrift,” of the S&L crises.) Non-performing loans will also have the ambient effect of requiring community banks to put aside more cash in reserves, according to Alan Friesen, president and CEO, Haberfeld Associates, Lincoln Neb. All in all, the consumer and small business deposit, typically taken for granted in most markets, has been moved to a top action item for the average bank CEO, notes Friesen. “There are many ways to make money in banking—on fees, spread, and investments,” he says. “Recent events should force more bankers to really consider both sides of the balance sheet.” At a recent gathering of dozens of community bank CEOs, however, Friesen relates that many, when quizzed by him, didn’t have ready knowledge of key stats such as their most, or least, profitable branch. Nor did any appear to have a working knowledge of profitable customers. Friesen says that this is a time for thoughtful pricing, promotion, and—in general—for thinking more like retailers, measuring and managing profitability and other key benchmarks. He urged bankers in attendance to get a good handle on opportunities for additional product sales among their existing customer base. “Most community bank CEOs grew up in the loan side of the business and they still tend to think of the loans as the engine of profits,” says the consultant. “This period will have many rethinking basic assumptions.” Certainly, looking hard at demographic data can help. Michael Quick, executive vice-president and group executive, Susquehanna Bank DV (which stands for Delaware Valley), Camden, N.J., part of $12-billion assets Susquehanna Bancshares, based in Lititz, Pa., says that his bank has felt the heat of recent competition when it comes to growing deposits. However, it managed to stay in the kitchen, so to speak, by “executing the basics of service consistently,” says Quick. The senior executive acknowledges a new set of defining dynamics evident in this cycle of relatively scarce cheap funds. “With the eTrades and Merrills and INGs out there, it can be hard for smaller institutions, even diversified ones, to hold onto business,” he admits. Still, Quick believes that doing well by the customer can lead to profitable referral business, which helped his bank grow deposits by 2% last year. “Word of mouth has always helped me in this business and I’m teaching our people how to make referrals work for them and support some organic growth for us,” says Quick. “In our training, we emphasize relationship selling and the importance of generating leads through happy customers.” Also key for the bank holding company in general has been the understanding of product requirements for a mix of clients throughout its four-state footprint of West Virginia, southern New Jersey, central Pennsylvania, and Maryland. “Central Pennsylvania, for instance, is largely a retirement community with fixed income folks that are concerned about asset preservation and income,” www.ababj.com/subscribe.html http://www.scnb.com/index.html http://www.susquehanna.net http://www.susquehanna.net http://www.susquehanna.net http://www.haberfeld.net http://www.ababj.com/subscribe.html

Table of Contents Feed for the Digital Edition of ABA Banking Journal - February 2008

ABA Banking Journal - February 2008 Contents On ABABJ.COM: Have You Visited Our Brand-New Website? Editor's Column "That's Edutainment" Snapshot: Tier 1 Ratios Stable so Far 100th Anniversary: Then and Now ABA Resources ABA Chairman's Position Don't Despair Pass the Aspirin Cover Story: Socially Responsible Banking Profitably - Incoming America's Community Bankers Council Chairwoman, Dorothy Bridges Demonstrates the Way A True "Rags-to-Banker" Story Retail Banking: On the Money Hunt Community Bank Management: The Ugly Truth About Board Relations Does Core Really Matter? Security 2.0: Not Just a New Kettle of Phish A Personal Case of Mal-Serendipity DOD Credit Regs Demand Attention Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - February 2008

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