The best loan rates are given to people who have prior business with a bank, says Mike Perry, president of San Diego Trust Bank. (photo/lambertphoto.com)

When banks compete, you win,” says a mortgage loan commercial. OK. So how do banks compete and what does the prospective lender win?

“In banking, we all have the same commodity for sale and that’s money,” says Frank Mercandante, president of Carlsbad-based Southwest Community Bank. “So when bankers tell you we make the difference in service, that’s part of the story, but to stop there is shortsighted. Good service includes responsiveness and creativity, trying to analyze a client’s banking needs and finding the most effective way for that client to solve those needs is the difference, to go down to the nitty-gritty and figure out the person buying the bread and saying whole wheat is better for you than white bread.”

Financial counseling might be appreciated, especially if the borrower’s company doesn’t have a CFO or controller, but the business person in a hurry might be most interested in knowing “when can I get the dough and how much will it cost?”

“The ability to perform is what people are looking for and very few banks deliver on a consistent basis,” says Mike Perry, president of Bankers Hill’s San Diego Trust Bank. “It means when you have a client with an opportunity to acquire a piece of property, but he has to perform in five days, the idea of going to the bank and getting it done in five days just doesn’t happen generally — we’ve done it in three days.”

“An existing client can get an application processed within 24 to 48 hours, but if you’re a new client, you’re going to want to get to know us and vice versa,” says Vince Siciliano, president of San Diego-based 1st Pacific Bank of California.

Vince Siciliano, president of 1st Pacific Bank of California, says it’s important for banks and potential clients to get to know each other. (photo/lambertphoto.com)

Mercandante downplays the need for a prior relationship. “Even with no prior relationship, I can give you an answer within one hour of the time you give me a financial statement, tax return and some overall description of what you’re buying and how much you’re going to pay,” he says. “As far as getting the money, if you need it in two days, we will bend over backwards to accommodate you, though sometimes we might be restrained by having to get an appraisal on the collateral we’re taking.”

Alert bankers can pick up business that other banks are leaving on the vine, Mercandante says. “We just got $2 million in loans and a half million in deposits from a borrower seeking a loan with a major bank that told him on the front end you got your loan and 90 days later told him it got kicked up to a ‘higher level.’ He called me and in a less than a week we closed the loan for him.”

With Treasury Secretary Alan Greenspan promising interest rate bumps up from the 5 percent prime range, each 50 basis points means thousands of dollars over the life of the loan.

“There are always people who will try and leverage one bank against another on price,” Perry says. “Not everybody gets the same rate. The best rate is based on the relationship — do I have your checking account, your money market account, online banking and lines of credit? If you have all your deposits somewhere else, and come to me for a loan, you’d probably get a better deal where you had the deposits.”

With the relationship, Perry says, a banker can be extremely responsive. “Let’s say you’re a contractor with a chance to buy some equipment for 30 cents on the dollar, but you need an extra $50,000. We’ll most likely say, ‘buy the equipment and we’ll have your documents for you Monday morning.’ The only way I can do that is if I understand and know exactly where that client is in his business.”

The technical term is a “target yield requirement,” says Siciliano. “You can get there through a variety of different ways involving rate and deposits.”

“Remember the old adage — rate follows risk,” Mercandante says. “We look at the amount to be borrowed, the collateral, the experience of the borrower and the total relationship we’re going to derive from this.”

The relationship also comes in handy when a borrower has cash flow problems. “If I know what happened to you is someone stole your credit cards or you got a divorce, if I know you’re a stand-up guy and you had a setback but there’s a logical explanation, I can take that risk,” Perry says.

Another way banks compete is for experienced bankers with knowledge of the market. “We compete for the best people, and that’s more of a factor with 14 new banks in town in the last three years,” Perry says.

Chasing Deals

Mike Perdue is president of Community National Bank, which recently acquired Cuyamaca Bank in East County. (photo/lambertphoto.com)

Although the standard mantra is that the regional economy is strong, bankers acknowledge they’re chasing deals. “There’s always competition going on for deals,” says Mike Perdue, president of Fallbrook-based Community National Bank. Perdue, whose bank recently acquired East County’s $115 million Cuyamaca Bank at 2.6 times book, says the smaller banks with lending limits of $1 million are more likely feeling the heat, because “they all deal with the same customers.”

Community National’s limit is $10 million, which Perdue says provides a niche between the smaller deals and the big banks that turn their noses down at deals below $5 million.

Perdue says banks also compete with information about banking, real estate and industry trends. “Not all companies have an experienced CFO or controller; that is something a borrower will pay for,” Perdue says. “We don’t have to be the cheapest in the market and we’re not, but if you have to worry about production, payroll and sales, you don’t want to worry about your financing, so we make the process easy.”

In the end, the sheer number of competitors may lead to fewer bankers chasing deals, and less competition. “When you increase the numbers of players in the field who are trying to garner their piece of the pie, there’s a tendency for bankers to become lax in a number of areas, including pricing and underwriting,” says Mercandante. “The key part of running a bank is the management and I’m concerned that we may have reached a point where there’s more banks than competent, experienced management teams to run them. When you don’t have somebody who has been through the down periods and remembers what it’s like to collect on a ‘problem asset,’ they might be a little more lax in their underwriting.”