Western Independent Banker - July/August 2008 - (Page 20)

By John Jones What Lending Crisis? Community Banks Flex with Lending Strength WHEN INVESTING IN the stock market, the axiom has always been, “Diversify, Diversify!” That way, no one sector can devastate your entire 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 California. Besides the low default rate of SBA loans and the government’s 75 percent guarantee, Brian Carlson, Excel’s president, says SBA loans are an attractive solution for his bank because of his option to sell the remaining 20 percent of each loan to multiple investors while keeping origination and servicing fees, using his core system to easily automate and manage the entire process. Bank of Clark County ($400 million in assets) in Vancouver, Wash., uses an automated system for loan guidance lines as a strategic source of long-term revenue, service differentiation and reduced risk. By simplifying and automating the approval and management of multiple commercial and construction loans tied to larger, preapproved lines of credit, the bank has built a profitable niche with large, long-term business customers that rely on the bank for financing that is easier and friendlier. 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 Texas chose their core system because it helps them focus on a customer’s entire relationship with the bank and the bank’s most profitable market sectors, and because they are able to quickly customize products or even help create new system capabilities in response to operational, strategic, or market needs. 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 of Hutchin s on , K a n s a s- ba s e d DCI, a provider of full-service bank technology and processing solutions to the financial industry. He can be reached at jjones@ datacenterinc.com. 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. 20 www.wib.org Western Independent Banker http://www.wib.org

Table of Contents Feed for the Digital Edition of Western Independent Banker - July/August 2008

Western Independent Banker - July/August 2008 Contents A Message from the President & CEO Getting Creative and Competitive with Leaders' Incentive Compensation Financial Covenants - What Good Are They Really? Homes Within Reach Revisiting Credit Quality and Risk Management Loan Yield Shock Wave - What Can You Do? What Lending Crisis? - Community Banks Flex with Lending Strength How to Fine-Tune ALLL During Uncertain Times Productivity, Technology and Export Growth Trump Housing's Fall in the Long Run - The Economy According to Brian Wesbury Distressed Real Estate Loans and Their Property Tax "Kicker" WIB Calendar Welcome New Members Index to Advertisers advertiser.com

Western Independent Banker - July/August 2008

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