Chippewa Valley Bank: Fueling Growth With Innovative Bank Stock Lending

In 2004, $700 million-asset Chippewa Valley Bank (CVB) in Hayward, Wis., launched a bank stock lending program that gives fellow community banks a faster, cheaper way to access capital and interest‑earning assets. 

Bank stock lending programs are senior debt loan programs secured by 100% of the bank stock. Borrowing banks use the funds as capital injections for a variety of purposes, such as acquisitions, loan growth, shareholder redemption or to raise capital levels to meet examination requirements.

Made for community banks

Traditionally, major banks have provided most bank stock lending. CVB saw the need for a program that benefits community banks and is run by a community bank that understands its peers’ needs. Ryan Gerber, CVB’s executive vice president, poses the question: “Why should the big banks earn interest off of community banks?” 

CVB’s program has had notable success, expanding in two decades to 85 bank clients in 22 states. Gerber says this growth reflects the shortcomings of how major banks do business. “Bankers like to overcomplicate the deal,” he says. “They know so much about it, they overthink the process.”

In contrast, CVB has simplified the lending process and trusts that its client banks know what they’re doing. “We didn’t create the wheel, but we did make the wheel better,” Gerber says. 

Big banks, for example, routinely take 90 days to commit and fund a client. “They have to go to executive meetings, loan commercial banking meetings, and it takes them longer,” Gerber explains. CVB, in contrast, approves and funds loans in seven to 10 business days once all documentation is collected. “We get the commitment letter there in 24 hours,” Gerber says. “Often when we get a call from a new bank, we’re already reviewing the client online and making a decision before we know the loan amount.”

This speed can make a big difference. Gerber recalls a borrowing bank that was under pressure to close a deal to acquire another bank. However, the correspondent lender, a major bank, was delaying the transaction. The borrowing bank came to CVB, which funded the loan within 24 hours of receiving the necessary articles and bylaws of the bank, financials and other documents. 

“With us, you’re dealing with the decision-makers and owners,” Gerber notes. “We get the deal done.”

Redefining borrowing standards

CVB’s reporting requirements and loan covenants are also much less onerous than many bank stock lending programs. “We stay out of the way and let you run your bank,” Gerber says. 

Whereas major banks require their clients to send in monthly reports, CVB simply accesses publicly available summary and call reports. This makes a world of difference to short-staffed community banks. “Our client banks are very thankful,” Gerber reports. “They’ve been through a nightmare in correspondent lending. They’ve got key people that are wearing five different hats and spending an extra hour or two sending in monthly reports that are already available online.”

Clients also benefit from less restrictive lending covenants. For example, some banks insist on a return on assets ratio covenant. If a bank’s deposit rates fall under a standard of a certain percent, the lending bank can deem the borrowing bank to be in breach. 

Alternatively, major banks may require burdensome net interest margin covenants that factor in the spread of the bank’s earning assets and liabilities. “We never use that. We don’t waste clients’ time with such petty covenants,” Gerber says. “It’s overkill on the banks as the ratios are public information quarterly and fluctuate depending on the economy.”

If providing a friction-free lending program wasn’t enough, CVB also offers client banks opportunities for loan participation. For example, if CVB has a loan for $20 million and can keep only $12 million on its books, it offers client banks an opportunity to pick up some or all of the remaining $8 million. “In some rural areas, there’s not a lot of loan demand,” Gerber observes. “They can throw this on their books and have an asset that earns interest.”

Gerber adds that this participation often defrays the client banks’ interest expense on their own loans. “It’s our way of giving back to them,” he says.

Drawing banks nationwide

Over the past several years, the number of major banks serving as correspondent lenders has declined, making CVB’s bank stock lending program an even more important resource. 

“We’ve gotten referrals from banks in southern Illinois or Kentucky and other rural locations that don’t have any other options,” Gerber says. 

When Gerber took over marketing for CVB’s bank stock lending program in 2015, he relied heavily on social media to get the word out. Gerber found that connecting on these platforms, especially LinkedIn, was a great way to reach a large but targeted audience. “You can make a post and it may touch 500 different bankers or attorneys,” he observes. 

At the same time, Gerber found that the posts created strong engagement with other bankers. The social media platforms gave prospects a window into CVB’s experience and expertise. This made “cold calling” less cold. Based on these contacts, Gerber made hundreds of phone calls, eventually expanding the bank’s program from local to regional and national.

Ultimately, Gerber is most proud of the benefits the program offers other community banks. “Our heart is with community banking,” he says. “This is community banks sticking together and helping each other out.”