Agriculture

Deep roots provide stability

By Bridget McCrea

Jeff Bailey, president and CEO of $852 million-asset Bank of Eastern Oregon, says the agricultural sector is dealing with the “double whammy” of high inflation and rising input costs right now. Crop prices are also receding and affecting profit margins for U.S. agricultural companies.

“They’re getting hit on both sides of the income statement at this point,” says Bailey, whose community bank has 24 locations in eastern Oregon, southeast Washington and western Idaho. On a positive note, he says companies operating in the cattle sector are “doing fairly well” despite also being hit hard by higher business costs. “Cattle prices have remained pretty strong,” he says.

An agricultural bank since its origins in 1945, the Bank of Eastern Oregon is accustomed to rolling with the punches, although Bailey says circumstances are “a bit more intense” right now, both from the income and the expense side of things.

“We’ve seen some margin compression and a slight increase in carryovers this year, but it’s still manageable,” says Bailey.

He notes that through it all, the community bank is sticking with its agriculture customers. “We know we’ll have some good years, some tough years and some really tough years. We ride along with them through those cycles.”

Community institutions like the Bank of Eastern Oregon are “in the agricultural space for the long haul,” says Bailey. “Agricultural lending isn’t just a sideline opportunity that we’re going to get in and out of.”

In fact, he says the community bank takes its responsibility to support rural communities—of which agriculture is a large part—very seriously.

“It’s not just a line of business; it is our business,” Bailey adds. “We see our members at the grocery store, ball games and church; they’re our friends and neighbors.”

Smart strategies for farmers

With 23 locations in Missouri and Iowa, $1.23 billion-asset BTC Bank operates in predominantly rural markets. Like Bailey, BTC’s president and CEO Doug Fish says agricultural customers are concerned about increasing input costs and shrinking profit margins. This isn’t a new scenario, either.

“These are issues that the industry battles all the time,” Fish says. Add droughts, excessive rainfall and low production yields to the mix, and you get a dynamic industry that’s always on edge.

“These are some of the ‘normal issues’ that agricultural producers and their banks deal with every crop cycle,” he adds, “and we’re looking at the same thing again now in 2024.”

BTC Bank helps buffer these headwinds by talking to customers about strategies like forward pricing (a contract between buyer and seller that locks in a price for a product to be delivered at a later time) and using live crop production protection coverage.

Farmers and community banks know that agriculture is a long game that doesn’t produce immediate results, but neither do most other types of business. However, in the ag business, there’s another factor: Mother Nature can play a major role in whether crops and other goods become saleable merchandise or not.

Still, agriculture propels its communities and their economies forward. That’s why BTC Bank operates on these three pillars: youth, agriculture and community.

“We’re very active in each of these areas, knowing that all three are vital to rural America’s continued survival,” says Fish. “We provide support in many different ways and hope all three continue to be strong in all of the markets we serve.”

Commercial

Calling on creativity, consistency and openness

By Ed Avis

When it comes to commercial lending, community banks succeed in any economic environment by forging deep relationships that help both parties uncover new opportunities. Here, three banks share how these characteristics have allowed them to effectively serve their commercial clients.

Beyond checking boxes

Spring Bank, a community development financial institution (CDFI) in the South Bronx borough of New York City, serves borrowers that don’t look like the companies larger banks pick and choose. They are small commercial real estate owners, small restaurants, retailers, small mom and pop stores, nonprofits and other local businesses that serve that community. Nevertheless, Spring Bank, which was founded in 2007 is a profitable institution.

“The South Bronx is the poorest congressional district in the United States,” says Akbar Rizvi, president and chief lending officer of the $428 million-asset community bank. “I can tell you firsthand that our clients and customers are not borrowers that fit into checkboxes. We take the time to understand our customers and see how is it that we can help make sense of the story and see if there’s a fit. We’re not afraid to roll up our sleeves and get into the weeds in terms of what the request is.”

For example, when a jazz lounge without a solid cash flow asked for financing, Rizvi looked hard at the proprietor and the property and decided the risk was worthwhile. COVID-19 almost devastated the business, but Spring Bank stood by it.

“Now, that business is thriving,” Rizvi says. “It’s doing better numbers today than it did before the pandemic.”

According to Rizvi, Spring Bank has succeeded because its staff keeps an open mind. “Our team loves what we do, and we treat our teammates and our customers with respect and do the right thing,” he says. “Our customers really appreciate that, especially that we walk them through the process. And we’re happy to take the time to do that.”

Consistency is key

Currency Bank’s Scott Gaudin worked for legendary University of Alabama football coach Nick Saban while he was in college. And during that time, he learned the value of focusing on consistent behaviors.

“[Saban] says, ‘As long as you are consistent with the behavior, the scoreboard will look fine. Do the right thing for the right reasons and focus on the behavior,’” says Gaudin, who is chief lending officer and executive vice president of $186 million-asset Currency Bank. “And that’s kind of what we do around here: We focus on being more of an advisor. We’re a for-profit business, obviously, but at the end of the day, I need to be your banker.”

The Oak Grove, La.‑based community bank’s roots reach back to the early 1900s, but Gaudin led a group that purchased the bank—and essentially relaunched it—about three years ago. Taking Saban’s advice, Gaudin is consistent in his approach to lending. He gives each potential borrower deep attention, even those that may not meet the community bank’s typical lending criteria at first glance.

For example, a local brick mason approached Currency Bank in 2022 for a line of credit. The mason was using a large bank, but it had denied the increase, saying his business was “not mature enough.”

“I look at his books—he’s meticulous. He turns invoices around very quickly. And I said, ‘This works, man,’” Gaudin recalls. “We’ve been helping him since then, and his business has more than doubled in size. So being able to help somebody like that, that’s what community banking should be about.”

Dive deep for better risk management

When CEO and chairman Chip Mahan founded $11.4 billion-asset Live Oak Bank in Wilmington, N.C., in 2008, he did not follow the traditional community bank model of serving all the businesses in a specific geographic area. Instead, he focused on a single industry: veterinary practices across the country.

Mahan’s father was a veterinarian, and he knew that veterinarians tend to pay their bills on time. So, that industry made sense from a risk perspective. He crafted relationships with key players and organizations in the field and developed staff who understood the business side of veterinary practices.

“Nobody knows more about how to run a vet clinic than our guys in terms of staffing and metrics and this and that,” Mahan says. “So, we take industry expertise and have those guys sit down with our credit guys, [and] come up with a credit box to tell the lenders, ‘You go get that, and the loan [will likely be] approved.’”

Using SBA data, Live Oak leaders identified other industries that are generally a good credit risk and could benefit from the Live Oak model. Today, the community bank serves approximately 6,000 borrowers across more than 30 industries ranging from funeral homes to independent pharmacies.

“The thought process was, you can understand an industry and credit a lot deeper if you have people focused on the industry as opposed to on a geography,” says Mike McGinley, head of small business banking. “Having lenders who are focused on an industry instead of a geography and lending nationwide opens up the ability to scale pretty quickly.”

Consumer/Mortgage

Dart Bank: Maximizing resources for outstanding results

By Ingrid Case

Dart Bank in Mason, Mich., finds its success through cutting-edge technology and the essential community bank relationship model. The $1.16 billion-asset community bank may rank No. 1 in our Over $1 Billion asset size category for consumer and mortgage lending, but it has just four full-service banking offices and 287 employees. The small but mighty community bank simply maximizes its resources by combining technology and good, old-fashioned customer service, says Dart Bank president and CEO William J. Hufnagel.

He notes that the combination of high tech and high touch is the key. “Many banks have one or the other, but not both,” he says. Once loans close, Dart continues to service them, giving the community bank another opportunity to answer customer queries.

To give you a better idea of its success, Dart’s loan volume was $971.3 million in Q4 2023, up from $755.2 million from one year earlier. During 2023, total loans increased by $216 million, and deposits were up by $244 million. Those numbers might have been higher, Hufnagel says, but for the current interest rate environment and its effect on the home market.

“There’s a lack of homes for sale,” he observes. Current homeowners might have mortgages at 3% or less, and they’re disinclined to trade that rate for the 7% they would pay on a new loan. When existing homeowners largely stay put, that has a domino effect that drastically reduces the amount of housing stock on the market. New construction can’t fully make up the difference.

Ease of application

However, Dart has made it easy to apply for a mortgage for those who are in the market for a new home. The community bank invests in technology that lets mortgage applicants apply entirely online, uploading required documents and pulling payroll and account information directly from bank records. It offers Fannie and Freddie loans that require fewer documents than in the past and can sometimes permit online appraisals. Skipping in-person appraisals saves these applicants money and time.

Of course, when online mortgage applicants have questions, they still can talk directly to a bank employee. “People don’t want to talk to a computer when they have a question,” Hufnagel says, adding that Dart employees—not an automated system—answer every call.

Dart treats consumer loan applicants the same way it treats mortgage borrowers. Customers can apply online, upload documents and bring questions to a bank employee. A loan portal lets both mortgage and consumer loan borrowers set up recurring and one-time payments, see loan balance and escrow account activity, retrieve statements and otherwise manage their lending relationship with the bank.

Flexibility is everything

The community bank’s employees are based in four traditional branches, located in Mason and three other Michigan towns. Dart Bank also has nine loan production offices where employees only handle lending administration. But unlike the majority of banks, 80% of Dart employees work either hybrid or full-time from home.

Hufnagel says that flexibility and professional respect help Dart hire and retain high-quality employees. “We empower people to make decisions and take care of clients, and no one gets in trouble for making decisions,” he says.

Workplace flexibility, especially letting employees work from home, also helps attract and retain quality workers. Dart has employees living and working in 19 states, which has helped it find more customers throughout the U.S.

“Technology, manager support, flexibility and treating people like professionals,” Hufnagel says. “The right people love that.”