Don't tell Bill Donius he can't compete against the largest financial institutions for consumer mortgage business.

In the nearly seven years since he joined Pulaski Bank of St. Louis as senior vice president in charge of the mortgage loan department, the $216 million-asset bank's origination and refinancing business has grown to about $187 million of loans annually, from just $21 million.

He has managed to get that business-which makes Pulaski the ninth- largest mortgage lender in the St. Louis metropolitan area - despite stiff competition from more than 350 financial institutions, among them St. Louis-based Mercantile Bank and BankAmerica Corp.'s NationsBank.

"In recent years a lot of community banks have missed the boat when it comes to bringing in mortgage business," said Mr. Donius, who has been president of Pulaski since December 1997.

"Small institutions should be the preeminent mortgage lenders in town," he said. "We have the ideal structure and makeup to make us just that. And consumers trust us, which is the key to selling.

"We should be able to make money originating, servicing, and selling these mortgages," Mr. Donius said. "And we should want to - because they offer an excellent entree to cross-selling opportunities.

Unfortunately, he observed, community banks generally expect mortgage business "to walk in or trip the door."

"A lot of bankers simply don't understand sales. In fact, I would suggest that a lot of people went into banking precisely because they were afraid of sales and didn't want to go into it."

Mr. Donius and other executives from smaller lenders say one key to their success-aside from compensating their own sales forces according to performance - has been to ally with real estate salespeople.

Independent banks have been reaching out to agents and others in the sales process, who often play a pivotal role in determining who the originator will be.

"At this point in the game, realtors still control a very large number of referrals in the marketplace," Mr. Donius said. "They'll say 'We want you to go to our lender' because they know that that person can get the job done without putting their commission in jeopardy."

Smaller banks have an uphill battle getting on real estate agents' "short list" of lenders. Sometimes that is because agents do not know the banks are in the mortgage business; sometimes it is because the banks fall short of the service quality that agents seek.

"At our office," said real estate agent Joanne Iskiwitch, "at least several times a week we have loan officers calling, leaving fliers and soliciting business. They're very aggressive."

"The realtors I know take great stock in personal service," she said, "and Pulaski provides it."

Ms. Iskiwitch, who works at St. Louis' largest agency, Gundaker Realtors Better Homes & Gardens, said she works with two other banks-"a larger one, where the service isn't as good, and a mortgage bank that, unlike Pulaski, can't keep mortgages on its books."

"The fact is that Pulaski is just one of three institutions I use consistently," she said.

Why is Pulaski on the A-list? Ms. Iskiwitch said the bank's Cheryl Dunavant "is one of the few loan officers who keeps me up-to-date.

"She calls constantly, she does very quick preapprovals, and offers to come to the client's home or office to take an application, which my clients appreciate.

"With Pulaski, often the loan commitment comes in ahead of schedule, which is unusual," Ms. Iskiwitch said. "The fact that they can keep some loans on their books rather than sell them into the secondary market is unusual. And they have closed every loan I have sent them, which is extremely valuable to us and the customer."

Roger Erickson, vice president of real estate lending at $180 million- asset State Bank of Cross Plains, Wis., said technology is providing a new way to work with real estate brokers as well.

"Over the last two months we've been involved with the development of Internet 'business cards' for retailers, which they give out instead of normal paper cards," said Mr. Erickson, whose bank is the No. 4 mortgage originator in the Madison, Wis., area.

He displayed a computer disk from Jetnet Corp. that provides information about real estate agents and their listings as well as local municipal listings service and information about the community.

The disk also includes a "home financing" section in which three financial institutions may list their services. "We pay Jetnet to be one of three," Mr. Erickson said. "Our banner shows," and agents can click into State Bank's Web site.

"We'll know what realtors are using it-they can buy these disks in blocks of 2,500 for $1 each-how many times we've been hit, who the first- time buyers are. Even if the customer has already found a home, he or she can still access us, because the information's stored on the hard drive."

Bankers point out that others involved in the sales process can be enlisted to help them, including financial planners, attorneys, home inspectors, appraisers, accountants and human-resources departments at corporations.

"You want to look at groups like this, because fewer competitors are knocking on their doors," said Kathy McCaulley, senior vice president of mortgage banking at Valley State Bank in Bettendorf, Iowa. The institution, founded four years ago, has $100 million of assets and last year made about half of its profit from the mortgage department.

"There's no reason you can't have formalized calling programs for them just as you do for realtors," she said. "In many cases they're more receptive to your overtures precisely because they're not so courted."

Janet Silva, vice president and residential loan officer at $57 million- asset Great Basin Bank of Elko, Nev., said it benefits from her participation in local events. "I have served as president of the Chamber of Commerce and encourage our employees to be active in the community," she said.

"We compete against Norwest, Bank of America, Wells Fargo, U.S. Bank, and a number of local mortgage companies, so we work at providing the very best service possible," Ms. Silva said. "To that end we do things that others don't, such as go to closings-I've been to as many as six a day. And we're expanding the number of products we offer, to ensure that realtors walk away from the transaction satisfied."

And nearly 900 banks, including 100 last year alone, have joined a program run by IBAA Mortgage Corp. in Arlington, Va., a for-profit subsidiary of the Independent Bankers Association of America. IBAA Mortgage helps to level the playing field by opening up the secondary market to smaller lenders, enabling them to offer more products.

"Four years ago most community banks didn't have a mortgage department active in secondary market lending," said Scott Hall, vice president of marketing at IBAA Mortgage.

There are a number of reasons for the increased interest now, he said, and one is customer retention. Small banks "realize that if they don't offer these products, the competition will," Mr. Hall said. "In addition, the big emphasis now is on data mining and cross-selling, and originating and servicing mortgages helps them tremendously in gathering data and building business.

Finally, he pointed out, "there's fee income involved throughout the pipeline-so smaller banks can both make money and provide outstanding products and service in the process."

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