Driven to Lend

Top automobile loan producers

By Karen Epper Hoffman

Just like selling cars, selling auto loans is as much (if not more) about the relationships as the product itself. So it’s not surprising that community banking’s top auto lenders say that it’s their personal connection to dealers that boosts their business.

Case in point: 1st National Bank of Scotia, based in Scotia, N.Y., has racked up more than $118 million in new and used auto loans—more than 37 percent of the bank’s total loan portfolio—without even using credit scoring to determine whether to make a loan. The bank’s underwriter reviews loan applications to determine who has the best likelihood of paying and, in many cases, the bank is “able to approve loans other people can’t and won’t approve,” says the bank’s president, John H. Buhrmaster. “We look at the whole person as opposed to the credit score.”

C. Todd Thompson, president and CEO, at Security Federal Savings Bank of Jasper, Ala., agrees with this philosophy, saying there’s “no cookie-cutter underwriting. … We take the time to look at the factors and see what we can do.”

 At the time Security Federal Savings entered the auto loan market in 2007, Thompson says, there was a sizable underserved market among marginal credit customers whom the community bank was able to serve, looking up more than $5 million in auto loans (just under one-third of the bank’s overall loans).

“The same things that make us successful in other lending lines help us here,” says Troy A. Peters, CEO of Jonestown Bank & Trust Co. in Jonestown, Pa., which services $67 million in auto loans. “It sounds clichéd, but dealer clients know that they can talk to us. A human being picks up that loan. … They’re not sending it in for an auto-response.”

Beyond being able to say “yes” to auto loans, top community bank auto loan underwriters say their success also stems from what they bring to the table in terms of responsiveness and helpfulness. Thompson says that for most of the dealers they work with, “they can get their money on the same day.” For borrowers who are having trouble paying on time, Buhrmaster says, “we work with people toward the beginning of the loan” to see if changing the payment due date or restructuring the loan will make it more manageable.

That flexibility is important, especially in a market that has seen significant ups and downs recently. In the years immediately following the financial crash, when “competitors cranked back their credit criteria and it was much harder to get a loan, we grew tremendously … . We were inundated with loans,” Buhrmaster says.

During the recession, Thompson saw many big banks pulling back and more credit unions “making more of a push.” With higher loss ratios, Security Federal Savings responded by training personnel on how to work with customers on solutions and also instituted a “skip a payment” program where customers who keep their loans current can forgo making two payments a year. (The bank is able to charge a small fee for the service, which drives fee income for the bank, “a win-win,” says Thompson.)

 Now that the recession is passing, Buhrmaster says more banks are coming back to the market and there’s been a “drastic drop in credit criteria” as regional and national banks like KeyCorp, Bank of America and JPMorgan Chase plunge back into auto lending. Rather than give in to the same “irrational pricing that got banks into trouble before,” Peters says Jonestown Bank & Trust, like most other community bank lenders, is staying the course, adding more dealers and not giving in to rate pressure.

“We’re just doing the same things and making smart decisions,” Peters says.

 For community banks that want to lift their own auto lending portfolio, Buhrmaster recommends reaching out first to work with auto dealers that are already customers of their banks. The first couple of years “can be tough,” he says, adding that he and other community bankers he knows have ended up with “a parking lot full” of Pontiacs or Hondas from misrepresented deals. Now, however, his auto loan portfolio boasts just 0.19 percent delinquencies, and “less than half that” in chargebacks.

Jonestown Bank & Trust and Security Federal Savings both offer that selling auto loans is a terrific route into cross-selling other bank products and services. “It’s a great way to get contact with customers … to cross-sell into the deposit side,” Thompson says. “Our core deposits have grown because of auto loans.”

Karen Epper Hoffman is a financial writer currently based in Europe.