Q&A: Rick leads Vermont National to bigger and bigger things

Vermont Business Magazine, Mar 01, 1997 by Andrews, Richard

HASHAGEN: It's not an economic factor. It's a social factor.

VBM: But it has severe economic consequences,

HASHAGEN: Absolutely.

VBM: Some bankers have observed credit card pyramiding, in which cardholders switch from one card to another, ending in a surprise bankruptcy, because everything is current until the moment of collapse, Is that going on in Vermont?

HASHAGEN: Absolutely. We had a loan committee meeting Wednesday, and among the credit cards written off were a few no more than 30 days overdue. It's like the shell game. Unfortunately, the financing industry is somewhat to blame for making it easy for people to get multiple credit cards. They can shift the debt from one to the other, until, in some cases, they have to pay the piper.

VBM: Has Vermont National tightened its credit card eligibility standards in response?

HASHAGEN: No, we haven't had to, because we haven't been doing the mass mailines. All of our cardholders, but a few affinity situations like Norwich University alumni, are Vermonters. We never went too far out, so we haven't had to pull back.

But, having said that, delinquency and losses are higher than they've ever been, even without broadcast mass mailings. The losses are running about twice what they were before the recession.

VBM: That doesn't inspire you to change your credit requirements?

HASHAGEN: Even at twice our historical rate, our losses are still less than half the national rate. And the product is still profitable. It's always a trade-off of risk and reward. If we cut back, we lose cards and all the income from them--both the income from the merchants and the income we charge them.

So far we're OK. We can absorb losses at, let's say, two-and-a-half percent of outstandings rather than one-and-a-half. But if that started to go to three-and-a-half to four to five to six, like some of the big banks, then we'd either have to cut back or charge more. We only charge 14.9 percent on our cards. People taking the 6-percent losses are charging 18, 19, 20.

VBM: So you're getting the same spread.

HASHAGEN: The same net spread.

VBM: Does Vermont National Bank securitize its loan portfolio?

HASHAGEN: We don't specifically securitize it, but we do sell a lot of residential mortgage loans to Fannie Mae and Freddie Mac, who turn those pools of loans into securities. But some larger banks securitize their car loans and their credit cards. We don't. We hold those on our books.

VBM: Why?

HASHAGEN: Because loan demand in Vermont is modest, and we want to get all of the interest rather than a small spread on the securitization.

VBM: You're aiming or a more significant rate on a smaller volume, because that's what you have.

HASHAGEN: Right. If we had more loan demand than deposits, securitization would be an excellent strategy, because you turn that money over and make a little spread, you turn it over again, you make another little spread. Right now there's fair loan demand in Vermont, but it's not as strong as it could be, so we don't have excess loans.

VBM: Does that change from time to time?