Some community bankers have resorted to going door-to-door to look for business, though they aren't out selling vacuum cleaners or magazine subscriptions.
With coffers overflowing with deposits, banks are under pressure to snag businesses and consumers who need more from their bank than a place to park excess cash in super-safe checking accounts.
Cross River Bank in Teaneck, N.J., is one of those banks. Gilles Gade, the $199 million-asset bank's chairman and chief executive, and his loan officers have been walking up and down city blocks pitching 0% loans to the dry cleaners, day spas and dentists' offices located there.
"We don't have a bottomless pit of money to give for this program," Gade says. "We'd like to [lend out] at least $1 million and see how it goes."
The effort highlights how eager some financial institutions are to gain clients. At Cross River, the unorthodox tactic is designed to foster goodwill in the community and, over the long term, bring in customers who have multiple bank accounts.
Pentagon Federal Credit Union in Alexandria, Va., is running a promotion in August where its members will receive a 0% promotional rate for 48 months on car purchases from Enterprise Car Sales.
Still, Cross River's door-to-door effort is unusual. The main benefit of such a sales tactic involves generating name recognition, says Jeffry Pilcher, who consults banks on marketing and branding.
"I'd bet the CEO feels like if he can pick up a few customers along the way, then great, but that isn't likely to be his motivation," says Pilcher, who also writes The Financial Brand blog. "He's trying to make business customers think, 'Hey, they sound pretty nice.'"
Cross River, like many banks, is awash in liquidity, with a loan-to-deposit ratio of 80% on March 31. The net loans and leases-to-deposits ratio for all U.S. banks was 70.4% at March 31, according to the Federal Deposit Insurance Corp.
That ratio, which stood at 91.6% in March 2008 for all U.S. banks, has fallen steadily every quarter since early 2010, says Fred Cannon, the chief equity strategist at KBW's Keefe, Bruyette & Woods. The decline is largely because of an ongoing inflow of deposits, without any offsetting loan demand, he says.
The situation likely won't improve any time soon. For one, the Federal Reserve Board has indicated that it will keep borrowing rates low at least through the end of 2014.
And deposits seem to keep pouring into banks. More than half of the cash holdings of multinational companies involve bank deposit accounts, up from 23% in 2006, according to the Association of Financial Professionals. The group projects that businesses will keep putting cash in "safe" investments.
Excess liquidity was the driving factor for at least one recent bank deal. City Holding (CHCO), a $2.9 billion-asset company in West Virginia, managed to find a thrift that had more loans than deposits when it agreed last week to buy the $504 million-asset Community Financial (CFFC) of Staunton, Va.
City Holding's loan-to-deposit ratio was 84.79% at March 31, while Community Financial's was about 120%. After the two companies combine, the ratio should be about 90%.
Managers at other financial institutions have decided to expand the sales force to generate loan growth.
Provident New York Bancorp (PBNY) in Montebello, which had a loan-to-deposit ratio of 74.22% in March, hired four bankers from Herald National Bank last month to expand commercial lending around New York. The $3.2 billion-asset thrift company has also hired lenders in the past year from Capital One Financial (COF) and First Republic Bank (FRC).
Cross River's bankers have used their door-to-door sales to introduce themselves, and offer the limited funds of its 0% loan program. Those who accept the loans are encouraged, but not required, to open a depository account, Gade says. Loan proceeds can be used to fix awnings, buy inventory or pay down debt.
The bank has so far booked about 20 of the one-year loans. The unsecured loans range from $5,000 to $20,000. Applications are brought back to the bank for analysis, though Gade says, "we do very light underwriting. We don't ask for collateral."