David Kerstein

Executive vice president, retail banking,

Old Kent Financial Corp.

Grand Rapids, Mich.

We have seen some increase in consumer loan delinquency, but we also saw an abnormally low number of delinquencies in the last few years. We had an all-time low in delinquency about three or four years ago.

So this recent rise is not an alarming issue. We fully expected delinquencies to increase. About one year to 18 months ago we tightened our credit policies in anticipation that as the economy matured, credit quality would worsen. This is a normal cycle.

We have also done some risk-based pricing in our auto and credit card portfolios, as well as in home equity.

What's happening nationally in credit cards is happening with our portfolio. We are experiencing a greater rise there than in our other portfolios. We stopped all new credit card solicitations almost a year ago.

We're also an active issuer of debit cards. That is a product we have been selling for years and one we like very much. However, our emphasis on debit cards is unrelated to our credit card issues. They are two very different products that attract different kinds of customers.

***

Robert Bouza

President, credit card operations,

Key Federal Savings Bank

Owings Mills, Md.

We are primarily issuers of secured cards. Our consumer population is hit a little more so by overextension of credit because income levels are lower, and therefore it is a reach for people to pay all their bills at any given time. Therefore, our delinquencies are sort of running on the same path as the industry, but a few basis points higher.

There are steps we are taking to help reduce our exposure. In the past we would add credit lines. For the time being, we have cut that feature from the program. We're looking more carefully at first-time delinquents, whereas we didn't in the past.

Remember, with a secured card, you have a security, so we didn't devote all efforts to first-time delinquencies. We are doing more so now. That's probably the biggest impetus we have.

My (delinquency rate) is about 12 basis points higher than the industry right now.

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Jim Miller

President,

S&T Bank

Indiana, Pa.

The overall delinquency rate this year has been fairly steady. Focusing on consumer lending, we saw a run-up in our installment loan portfolio at the end of last year.

Our mortgage portfolio has been fairly constant, with delinquencies between 1% and 1.3%. We haven't seen much change there in the past 12 months. This is probably because we have always been careful in our underwriting.

Delinquencies in our Visa portfolio have run up a bit. However, that's a very small portfolio worth only about $10 million. It's more of an accommodation to good customers than a product we emphasize. The rise in delinquencies there is affected by a rise in bankruptcies as well as voluntary repossessions.

When we saw the installment loan portfolio's delinquency rate rise in the fourth quarter of 1995, we added people and other resources to our collections. We began intervening earlier and focusing on first-time delinquencies. The delinquency rate rose to about 2.5%. It has now returned to what is an acceptable level to us, between 1.5% and 1.7%.

We are just approaching risk-based pricing now. We hope to have it in place - particularly for consumer and indirect products - in the next six months or so.

Terrance G. Hodel

President, chief operating officer,

North American Mortgage Co.

Santa Rosa, Calif.

We haven't seen any marked increase in delinquency rates. They're higher than they were a year ago - that's for sure - but I wouldn't say they're just taking off now. I don't see the same problems, for example, that credit card people are seeing right now.

Delinquencies are up, but they're not anywhere near the same magnitude as they are in consumer loans.

We're trying very hard to curb delinquencies. We have installed some artificial intelligence into our collection system that tries to predict those people who are normally late so we don't call them first. It identifies those people who have become late for the first time or have other characteristics that would indicate we need to call them very quickly. This is something we've had for six to eight months. I think it's fairly new in the industry, but several companies have it. It's a way to identify where to put your collection talents by looking at people's payments.

Also, Fannie Mae and Freddie Mac have very active programs to work with delinquent borrowers. We have a lot of people working with delinquent borrowers, especially those that are just starting to get in trouble.

Tom Lazenby

National consumer banking executive,

Compass Bank

Birmingham, Ala.

We really haven't experienced a rise in delinquencies. Some of our competitors have, but we have a pretty clean portfolio. We are probably below the norm in delinquencies relative to charges from what I've seen. We've had such a small increase in our delinquency rate, that I don't think you could call it a trend.

This is typically just a function of how we evolved in retail banking. We have a fairly conservative philosophy, but I think that most banks would be considered conservative, although some of that trend is starting to change. That's probably why you're seeing more delinquencies now than before.

Industrywide, I don't think that a high delinquency rate is necessarily a bad thing. There should be more of an emphasis on a rewards-to-risk ratio. People are pricing higher in certain parts of the credit spectrum and are taking more risk. More banks are buying deeper into the quality of credit, and you're naturally going to see a greater number of delinquencies.

You can have one account, and if you over advance on it you lose $10,000, or you can have five accounts worth $2,000 each. There are a lot of different things you can do to mitigate that risk of loss.

We are buying deeper, but that won't show up for another 15 to 18 months as far as trends. What we are doing now is pricing according to the initial risk we're taking. I think that's really what it comes down to: looking at the type of yield that you have versus the anticipated loss. That's what most banks are doing. In one respect you have to ask "are delinquencies rising in most banks," and the answer is probably "yes." Then you have to ask "are the yields for that interest market increasing proportionally" and if they are, then that's not altogether bad as long as it doesn't get out of control.

***

Richard A. Fink

Senior executive VP, chief credit officer,

Glendale Federal Bank

Glendale, Calif.

Since February or March, we have actually experienced a decline in delinquencies. This is the first time that has happened since the real estate recession hit California.

In 1991 we began a significant retrenchment in our lending activities. A number of subsidiaries were liquidated or sold. All of multifamily commercial lending was terminated. Basically, consumer lending was shut down and all of the real estate activities were focused on single-family lending. At the same time, single-family underwriting standards were revised.

We came very close to failure in 1992 and 1993, but we succeeded in the largest-ever recapitalization process in the summer of 1993.

There was a credit card that the bank had issued during the 1980s - the same time when all the other changes were happening at Glendale. We sold off our credit card portfolio and stopped issuing them. About two years ago, we began issuing a debit card that we linked to an unsecured line of credit.

The debit card has the same credibility and ease of use as a credit card. It has a MasterCard logo on it and is accepted wherever MasterCard is. Our experience with those products has been pretty good, although it usually takes a couple of years before you really see how effective your underwriting is. To date, our delinquencies on the unsecured line have been consistent with our expectations.

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