Beating the Odds

The industry’s top overall loan producers share the secrets to their success

By Katie Kuehner-Hebert

Superior lending success can involve many factors. Good fortune always helps, like operating in a resilient, robust local economy. Throughout the country, lending demand for community banks has varied depending on the state of recovery of their local economies since the Great Recession. Many community banks have faced and still face difficult lending challenges from a dire combination of soft loan demand and fierce competition.

But good fortune can also derive from hard work and smart decisions. Several of the top 50 overall community bank lenders that ICBA has identified—calculated as those banks with the highest percentages of loan volumes compared with total assets in 2012—have shared the reasons for their success in booking industry-leading loan productivity last year. Speedy but smart judgments on credit applications stood out as one of the common traits for winning loan business in today’s highly competitive marketplace. And speedy and smart decisions frequently stem from reliably smart and experienced lending teams operating within well-oiled loan workflows.

Here’s how some ICBA members among the top-50 overall loan producers explain their success from last year.

John Marshall Bank. In Reston, Va., John Marshall Bank is blessed with one of the most economically stable metropolitan areas in the country—Washington, D.C., home to not only many federal government offices, but also hundreds of government contracting firms and their vendors and suppliers, says John Maxwell, the bank’s chairman and CEO. The bank also directly serves the region’s thriving high-tech business corridor.

John Marshall Bank focuses on small-business lending for ongoing operations, lines of credit, equipment financing, inventory and investment financing, as well as for Small Business Administration loans and commercial real estate loans. The community bank also has a specialty niche in government contract lending, and its “sweet spot” is business from startups to organizations with $20 million in annual sales.

Maxwell says the bank wins deals by having experienced lenders who generate leads from their community activities and networking with accountants and attorneys. Moreover, the bank is flexible in structuring credit arrangements, such as forgoing prepayment penalties or onerous covenants found in other bank terms.

“John Marshall [Bank] prefers a more flexible, subjective approach to [credit] scoring, looking at a number of factors beyond just the numbers,” Maxwell says.

Operationally, the $565 million-asset bank also has worked closely with third-party vendors to acquire the latest service technology for its commercial customers, such as remote deposit capture, sophisticated cash management tools, online banking and digital lockboxes. Moreover, the bank works hard to provide networking opportunities for its small-business clients, often using professional mixers and advisory boards as relationship catalysts.

Main Street Bank. Jeffrey Kopelman, president and CEO of Main Street Bank in Bingham Farms, Mich., attributes his community bank’s top-producing lending success last year—particularly in mortgage lending—to “timing and luck.”

“The regulations were changing, with new requirements for brokers who were getting blamed for the housing crisis,” Kopelman says, “and so we thought it might be the time to get into the business because there was only a very small group of companies left making these loans.”

In 2010, Main Street Bank, which has $145 million in assets overall, brought over an entire residential mortgage operation from another bank that was having trouble with its commercial real estate loan portfolio. Right out of the blocks, the operation produced “tremendous” volume, about $30 million a month, generating “phenomenal” fee income from loan origination, Kopelman says. “The key to our success was there were a lot fewer players in the market doing residential lending,” he adds, “plus we were able to close loans much quicker because we had a much more efficient operation than any of the big banks.”

Now in 2013, some of the players are trying to get back into the residential mortgage market, but the availability of experienced loan officers combined with various regulatory changes is making that re-entry hard for some of those competitors, Kopelman says.

“You have to make sure you have the right operation and the right people who understand what needs to be done so the bank doesn’t get into trouble,” he explains. “While competition has sprung up, there aren’t too many others that have the infrastructure in place like we have to turn around a loan very quickly.”

First Bexley Bank. First Bexley Bank in Bexley, Ohio, is fortunate to be located in the suburbs of Columbus, which has had a stable economic market thanks to the presence of employers such as Ohio State University, Nationwide Insurance, Victoria’s Secret, Abercrombie & Fitch, Bath & Body Works and Big Lots. The city also draws economic activity as the state’s capital.

But the biggest factor that propelled First Bexley Bank’s top-producing lending success last year was timing, admits David Mallett, the bank’s president and CEO. Opening in 2006, the now $230 million-asset bank was “too new to get into too much loan trouble” when the Wall Street financial crisis hit nationwide, he says. That clean-slate advantage, with lots of money to lend, helped the bank lure business relationships from other banks, particularly regionals that were preoccupied with mending their balance sheets.

“We had three or four years where we were able to talk to strong, successful businesses that had been kicked out of those banks because they were in the wrong sector—CRE,” Mallett says. Since then, the area’s economy has improved, and commercial lending competition in the Columbus market has tightened, he adds.

“It’s a lot of work—we all sell the same commodity, money,” Mallett says. “You have to battle for each and every loan, not only on rate, but you have to differentiate yourself on terms. You’ve also got to sell yourself and execute better than the competition.”

While it can be tough to compete on price as the largest banks are “throwing cheap money all around,” First Bexley Bank’s ongoing advantage is its ability to close deals faster than its competitors, Mallett says. The bank can close a commercial loan deal worth $1 million in credit in one to two weeks, excluding third-party work such as appraisal and title work.

“When we can execute better than our competition, it makes a huge difference,” Mallett says.

Meridian Bank. In Malvern, Pa., Meridian Bank maintained a low ratio of residential-to-commercial real estate lending during the housing boom years. So the bank came out of the Wall Street financial crisis without troubled assets, says Christopher Annas, the $444 million-asset bank’s chairman and CEO. It also was able to attract successful homebuilder customers from other banks that could not lend during the downturn.

“Now, as other lenders are back in the market, these customers stay with us because we have shown them loyalty and given them great service—plus, they still remember that their former bank shut off the faucet,” Annas says.

During that period, Meridian Bank was also able to pick up experienced lenders from its struggling competitors, which has enabled the bank to bring even more homebuilder and developer customers on board. “But it’s not all timing and good fortune,” he adds. “We keep our customers and win deals because of the consultative way we help builders benchmark against other builders.

“Showing small builders creative ways to handle their finances as they do ever larger projects helps them get to be big builders.”

Security State Bank. In Sutherland, Iowa, Security State Bank has been able to book a lot more commercial loans in its rural markets by taking advantage of a growing boom in farm real estate, says Darin Johnson, the bank’s president.

“Several years ago, the bank recognized a developing bull market in agriculture driven by biofuel production and a rapidly increasing global standard of living, especially in developing, high-population countries such as India and China,” Johnson says. “We made a conscious decision at that point to become the ag lender of choice in the area for not only crop inputs and livestock but also for farm real estate loans.

“This strategy has proven very successful with quality farm land now routinely selling for $15,000 an acre in Northwest Iowa,” he adds.

Security State Bank, which has $99 million in overall assets, has been able to fund the loan growth primarily with wholesale funding at extremely low rates, according to Johnson. On a typical $2 million farm land loan, the bank will purchase a $1 million “bullet advance” from the Federal Home Loan Bank or a brokered certificate of deposit and then fund the balance with short-term funding, either core deposits or an overnight Fed Funds advance.

“This allows a lower blended cost of funds with minimal re-pricing or interest rate risk,” Johnson explains. “We have given our guys the tools to compete directly with Farm Credit and other tax-advantaged lenders while still maintaining a healthy net interest margin.”

Citizens State Bank. In La Crosse, Wis., Citizens State Bank has benefitted from favorable geography that promotes a stable economy in its western Wisconsin market. The Mississippi River and its surrounding bluffs create a “natural barrier” to contain explosive growth that can backfire long term, explains Dennis Vogel, the bank’s president and CEO. La Crosse is also fortunate to be home to several regional health care facilities and three colleges, which provide further stability to the local economy.

The $120 million-asset bank’s loan portfolio comprises mainly commercial credits, 75 percent of which involves a combination of owner-occupied commercial real estate and investment properties. About 20 percent of the bank’s commercial loans are commercial and industrial.

Most of Citizen State Bank’s recent loan growth has come from stealing loan opportunities from competitors, Vogel says. “We get them to talk to the right accountant and the right attorney, and help them find business,” he says of his bank’s newest borrowers. “We’re not just here to give them money or say no, but we work with them to help increase their revenues and margins and decrease their overhead.”

Vogel adds that the bank’s loan officers are also responsive, answering customers’ emails and voicemails within two hours. “Customers really appreciate this since customers of other banks can wait days for a return call.”

The Business Bank. For The Business Bank in Minnetonka, Minn., lending has been robust across all credit lines, but mortgage lending has been a particular standout performer, says Mark Lauffenburger, the bank’s chief operating officer. Through its Prime Mortgage unit, the bank makes mortgages in Minnesota, Wisconsin, Arizona and Florida, mainly to customers in Minnesota who also have vacation property in those other states.

Refinance activity has been particularly high over the past several years, and now there’s been a resurgence of purchases. “Customers refer their neighbors and friends—it comes down to personal relationships,” Lauffenburger says.

Residential lending has been about 40 percent of The Business Bank’s overall loan portfolio. The rest of its portfolio comprises equal parts CRE loans, C&I loans and private banking loans.

As a Small Business Administration lender, The Business Bank, which has $165 million in overall assets, has also taken advantage of a boost of funding available through the SBA 504 Loan Refinance Program, a recipient of the federal government’s economic stimulus spending. The bank also fared well due to the stable economy of the greater Minneapolis-St. Paul area, home to General Mills, Polaris, 3M, Honeywell Health Partners, Medtronic and other major employers.

“As a smaller organization, we experienced fewer problem loans than some of our competitors,” Lauffenburger says of the bank’s performance in landing loans. “We identified problem loans early and got out of those situations sooner than our competition, so we could concentrate on new growth.”

American State Bank. American State Bank in Sioux Center, Iowa, due to its strong capital base and a lending limit over $11 million, sets itself apart from its competitors by making commercial real estate loans on its own without participation, says Stan Speer, the bank’s president.

“Having capacity in our market has been an opportunity and a strength,” Speer says. “It has allowed us to meet our local market’s growing lending demands.”

Moreover, American State has booked a lot of commercial real estate loans because Sioux Center’s city staff and council have been able to attract new businesses to the area, “and that certainly gives us the opportunity for additional deals,” Speer says.

But most of all, the $607 million-asset bank is willing to customize loans for each individual situation, and it’s willing to wait for new customers to ultimately choose American State. “You have to have patience—sometimes four or five years, because when they finally do need financing, they’ll remember you,” Speer says. “It’s not like a car sale—you have to be in it for the long haul.”

Ultima Bank Minnesota. Mark Finstad, president of Ultima Bank Minnesota, attributes much of that success in generating loans to serving a healthy market focused on agricultural production. But he’s also quick to acknowledge that the $137 million-asset community bank has regularly beaten out other ag lenders by having a strong lending and credit administration staff. Having a loan management software system developed in-house by the bank’s owner and former CEO, Arnie Skeie, has also played a significant role in speeding up credit decisions, a central factor in the bank winning so many loans.

“This tool really helps us to be efficient and quick with loans,” Finstad says. “Our loan decisions are prompt, usually same day.”

Ultima Bank is a frequent user and strong proponent of both the U.S. Small Business Administration and Farm Service Agency loan guarantee programs, and in 2012 the Minnesota Small Business Administration named the bank its Rural Lender of the Year.

As competition heats up, Ultima Bank is selling more government-guaranteed loans in the secondary market, Finstad says. “While this does impact our growth rate, it retains and strengthens customer ties and generates a good deal of referral business.”

Ultima Bank also has little to no turnover among its lending staff, partly the result of a generous compensation package and an incentive compensation plan that couples the bank’s success with employee reward and recognition, Finstad says.

“We have learned that our overall compensation program is extremely cost effective,” he says. “All staff are encouraged and expected to generate or refer new business and look for every opportunity to improve the bank’s efficiency.”

Katie Kuehner-Hebert is a writer in Running Springs, Calif.