Loans for Everyday People

Top retail consumer loan producers

By James Richter

The Great Recession has taken a toll on community banks and their customers alike. But community banks that don’t treat their customers merely as walking, talking credit scores are finding new opportunities in retail consumer lending.

Perhaps one of the best examples of a community bank delving deeply into consumer lending to fully serve its customers and community can be found on the Cheyenne River Indian Reservation in Eagle Butte, S.D. “Ninety percent of the Native Americans here live paycheck to paycheck,” offers Steve Payne, president of the State Bank of Eagle Butte, which has $48 million in assets.

Payne’s father founded the bank in 1960. While not a Native American himself, Payne has eight grandchildren and each is a member of the Cheyenne River Sioux Tribe. Those personal, deep connections with the community drive him to work with every person who walks through the door. And that, in turn, has also made the bank a top producer of consumer loans in the industry.

Most of State Bank of Eagle Butte’s $11.6 million in consumer loans are unsecured. The bank often makes loans for as little as a few hundred dollars, which customers often use to pay for expenses such as monthly energy bills, holiday gifts and school clothes. It requires at least $75 in interest for each consumer loan, or, in lieu of that interest, a minimum fee of the same amount is triggered per loan.

Payne has had to price the bank’s loans about 5 percent higher than its competition to make a reasonable profit, but he and his staff always work with their customers to help them avoid default on their monthly payments. “The bank examiner said we’re the only bank that operates the way we do, and as you know, we’re making money the way we’re doing it,” he says. “We’re a safe and sound bank.”

Israel Hinojosa, president of First National Bank of Hebbronville, Texas, also finds value in consumer lending to assist otherwise underserved members of his south Texas community. Hinojosa’s community bank is celebrating its centennial this year and has $142 million in assets, about $10 million of which are consumer loans.

“We continue to make smaller loans to help our customers as other banks in town have steered away from them,” Hinojosa says, adding that the key to loyal consumer borrowers has been their confidence in the bank to promptly provide them with a fair loan.

Likewise, Lee Milam attributes the success of consumer lending at Whitesville State Bank in Whitesville, W.Va., where he is president, to his employees’ willingness to look at more than just an applicant’s credit score.

“Credit scores are not the be-all and end-all of determining whether these are quality individuals,” Milam says. For example, he points out that two $50 medical collections can pull a credit score down from a 750 to a 675 in a month.

Milam, whose bank had assets of $83 million and about $12 million in consumer loans at the end of 2012, also points to the bank’s success in working with dealers of manufactured homes, cars and power-sports vehicles. The bank occasionally partners with such dealers to sponsor all-day sales events, during which a radio station will broadcast live and on-site for extra publicity. The bank’s personnel are always on hand to meet the customers and help them secure financing on the spot.

“The key [to consumer lending] is relationships with your community, indirect dealers and your marketplace,” Milam says.

Mike Falge, president of Murphy Bank in Fresno, Calif., leverages similar partnerships with such dealers. His community bank, which had total assets of $122 million at the end of 2012, holds primarily auto and mobile home loans in its $50.5 million consumer loan portfolio.

Murphy Bank has been specializing in mobile home loans for 25 years, and Falge cites the bank’s reputation as a reliable underwriter as the reason real estate agents consistently partner with the bank. “We treat their customers right, they know we’re efficient, and they know we close transactions,” he says.

These four community banks demonstrate that focusing on customer service while creatively tapping underserved markets can both benefit communities and boost bank revenue through effective consumer lending.


James Richter is a writer in Chicago.

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