Community banks' growing urgency to book commercial loans has provided a timely lift to companies that play matchmaker with borrowers.
Groups like BancAlliance, BoeFly and the Ohio Bankers League that pair borrowers with lenders are upbeat about the prospects of signing new clients and boosting lending activity this year.
Conestoga Bancorp in Chester Spring, Pa., is among the community banks that asked for help. The $568 million-asset bank has widened its relationship with BoeFly, closing five loans through the online marketplace in recent months and formally beginning evaluations on a dozen more.
Working with a lending service is "a viable niche for community banks looking … to expand their reach," says Morgan Johns, a senior vice president at Conestoga. "I view it as having an extra salesperson on the staff, without having to have all the overhead."
Conestoga expects to book at least one loan each month through BoeFly, Johns says.
Potential borrowers do a lot of the work themselves, which also cuts costs for lenders, says David Nayor, BoeFly's co-president and chief operating officer.
Turning to matchmakers has gained popularity as traditional bankers' banks diversify into new business lines, such as evaluating loan books. Widespread changes at bankers' banks follow a period where there were two high-profile failures: Silverton Bank in Atlanta and Independent Bankers' Bank in Springfield, Ill.
BancAlliance, a Chevy Chase, Md., cooperative backed by $150 million raised by Alliance Partners, just added its 100th member, and it expects to have 150 to 200 members by the end of 2013, says Lee Sachs, the group's chief executive. The appeal of pairing lenders and borrowers has grown as community banks' loan-to-deposit ratios have widened.
"The asset gap is large and has continued to grow," Sachs says. "Banks are finding themselves in a position where they need to get a bit more creative."
BancAlliance has expanded beyond its initial focus of buying loans in the secondary market; now it is participating in primary syndications, says Lori Bettinger, the group's head of membership.
BancAlliance moved in that direction at the urging of its members. "We go to our members first and ask them what they want," Bettinger says. "We seek specific loans only if there is member interest."
Pentucket Bank in Haverhill, Mass., wanted to diversify beyond commercial real estate and start making more commercial and industrial loans, says Chuck Walker, its chief credit officer. The $644 million-asset bank will continue to originate its own C&I loans, but BancAlliance will serve as a helpful supplement. "It gives us access to" larger opportunities, Walker says. BancAlliance has "contacts with larger institutions that we, as a community bank, just don't have."
The loan participation service that the Ohio Bankers League created for its members "hasn't really caught fire yet," says James Thurston, a spokesman for the group. The slow acceptance rate is more a function of the Ohio economy, and Thurston says he expects the pace to accelerate this year.
"It's purely a reflection of economic conditions," he says. "We're going to try to take advantage of the uptick in the economy."
An alternate means of finding borrowers isn't for everyone. Some small banks have no interest in using matchmakers, largely because of concerns about the potential risk.
"We've never really played in that space and we probably haven't spent a lot of time considering it as an option," says Thomas Quinn, president and CEO of Orrstown Financial Services (ORRF) in Shippensburg, Pa. Rather, the $1.2 billion-asset company confines its lending activity to its traditional markets in central Pennsylvania.
"We've always lent within our footprint," Quinn says. "We know our customers. We know who we're doing business with."