Publications & Resources
July/August 2008
Focus: Lending & Credit
What Lending Crisis? Community Banks Flex with Lending Strength
By John Jones
When investing in the stock market, the axiom has always
been, “diversify, diversify” so that no one sector can devastate your
portfolio. Amid the recent struggles in the mortgage market, many community
banks are successfully driving that same point home in their own lending
strategies. By diversifying their approach, their client focus, and their use of
technology many community banks are better prepared to weather market downturns.
Diversity is Beauty
While the mortgage market, especially the subprime market, is slumping, some
bankers have benefited from focusing on other sectors not hit quite as hard.
For Beverly Hills, Calif.-based Excel Bank ($117 million in
assets), Small Business Administration (SBA) Loans are a key factor in the
bank’s growth, while minimizing risk and bringing new customers and
opportunities for the bank. Excel bank boasts one of the most successful SBA
loan programs in the state of
Bank of Clark County ($400 million in assets) in
Other community banks have succeeded by skillfully
embracing other lending options, such as direct vehicle lending, indirect auto
and recreational vehicle lending, student lending and credit card programs.
People, Not Stuff
Tommy Ellison, CEO of Nacogdoches, Texas-based Commercial Bank of Texas ($318
million in assets), takes diversified thought a step further, saying successful
lending, at its essence, is about three things – people, tools and credit
quality.
Ellison attributes his bank’s robust lending portfolio
and successful track record to its focus on the relationship with the community
and people he is lending to, and not the value of the “stuff” being
financed. The bank, which serves a college town, defines its portfolio and
lending strategy in terms of community need (e.g., credit cards, mortgages, auto
loans and student lending). According to Ellison, banks that focus only on the
value of the “stuff” lose sight of the key attribute that makes community
banks stand out – their customer relationships. Ellison encourages his loan
officers to puts as much effort into determining the borrower’s willingness to
pay the loan as to their ability to pay. Customers that have a close, trusting
relationship with their banker and are treated fairly will view that bank better
than its competitors, bring it more business and be less likely to default.
Use Tools to Diversify and Streamline
Community bankers can also look to core technologies to help improve their
lending success through automation, analysis and customer attention. Selecting
useful technology is a matter of finding systems that either already have the
integrated tools to solve a problem, can integrate other tools to according to
the bank’s preference, or allow the bank to help create the integrated tool(s)
they want.
Ellison says Commercial Bank of
Kim Capeloto, president of Bank of Clark County, worked
with his core processor to develop the automated guidance line tool that, among
other things, helps him instantly determine a customer’s capital commitment on
a loan, how much of the loan line has been used and how much is still available.
Other tools, such as automated shadow accounting to help
recover and manage charged-off loans, also help bankers reduce risk and loss.
Rethink Risk
Community banks have proven, even in these uncertain times, that by rethinking
approaches, focusing on customer relationships, and working with their core
technology providers to create useful loan management tools, they can create
strong, profitable loan portfolios stocked with loyal, income-producing
customers.
John
Jones is president and CEO officer of Hutchinson, Kansas-based DCI, a provider
of full-service bank technology and processing solutions to the financial
industry. He can be reached at
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