Royal Oak Gets Prime Attention By Cutting Rate
First Fidelity Bank grabbed some headlines last week when it reduced its prime lending rate to 7.75%. But the institution was not out on a limb by itself: The National Bank of Royal Oak had made the same move two weeks earlier.
In fact, the community bank in suburban Detroit has led the pack for the past three changes in the prime rate.
Cynics dismiss the early moves as publicity stunts. But the Royal Oak insists the cuts were justified because its own cost of funds was falling.
"If we are not paying so much for our money, then we should not be charging our customers so much," said Edward B. LeFevre, Royal Oak's president and chief executive.
Mr. LeFevre, 67, said the lag by the big banks in following Royal Oak's pricing doesn't bother him. "We have the same way of figuring out the cost of funds as the big boys," he said.
The decision to cut the prime is made jointly by Mr. LeFevre and William Carley, the bank's chief financial officer.
Mr. Carley suspects the bigger banks are slow to lower their prime because they want to keep net interest margins as wide as possible during these tough times.
"The big banks have their own problems," Mr. Carley said.
Mr. LeFevre denied that the early prime rate cuts are designed to get press attention for Royal Oak, which has $151.4 million in assets.
"Believe me, I said last time I'd never do it again because I get all these calls from reporters," he said.
But some observers don't believe him. "Of course it is a publicity stunt," said Justin L. Moran, a bank consultant in Ann Arbor, Mich.
But, Mr. Moran added, Royal Oak deserves some publicity. "It is a first-rate little bank."
Royal Oak earned $1.4 million in 1990, or a healthy 98 cents for each $100 of assets.
The bank, a unit of Royal Oak Bank Corp., is not burdened with a lot of soured loans. Non-performing assets are very low at about 1% of total assets.
Royal Oak has some $43 million in commercial loans. About 400 of the bank's 600 commercial borrowers have loans tied to the prime rate.
Most of them are small businesses, such as metal-bending shops and retailers.
Virtually all of the bank's loans are to borrowers in the metro Detroit area.
The annual report proudly states that the bank has "no foreign, energy, or farm loans nor has it made any loans in connection with highly leveraged transactions."
The son of a Chrysler Corp. electrician, Mr. LeFevre got his first banking job in 1941 as a bookkeeper at Bank of the Commonwealth, now part of Commercial Inc.
Firsts for Community Banks
The Detroit native joined Royal Oak in 1978 as executive vice president and chief operating officer and was named chief executive six years later. He has a bachelor's degree in business administration from the University of Detroit.
Mr. LeFevre follows a tradition in which community banks have been the first to make prime changes.
For a time in the late 1980s, for example, Southwest Bank in St. Louis led the nation with prime rate changes.
On Friday, Southwest followed Royal Oak with a 7.75% prime. Why the delay?
"We review it day by day," said I.A. Long, 92-year-old chairman emeritus of the Mississippi Valley Bancshares Inc. unit. "We didn't think it was an appropriate time to move the prime."