Specialize and Thrive: Community Banks Find Success Lending to Niche Markets

The Bank of Tampa; Tampa, Fla.

Niche: Aviation financing

The Bank of Tampa is taking its aircraft financing to the next level. Although the $3 billion‑asset community bank has been financing aircraft for customers throughout its 40-year history, it created a formal aircraft financing practice early in 2024. 

“We have many clients that we didn't even realize own aircraft, and they were going elsewhere to finance it because they didn't know that we finance aircraft,” says Scott Gault, executive vice president and Hillsborough County market president at The Bank of Tampa. 

The move to launch the formal practice was also fueled by the demand the Tampa, Fla., community bank was seeing from existing customers who wanted to buy personal or corporate aircraft. More broadly, the bank wanted to put its talented staff to work to build a bigger specialty lending niche.

As part of this work, the bank needed to call on its specialty expertise. “When it comes to aviation financing, you’ve got to really know the ins and outs of the federal regulations,” Gault notes. 

Because aviation is regulated by the Federal Aviation Administration (FAA), there are various specialized requirements to navigate when financing planes and helicopters. For example, the aircraft and its engines need to be registered with the FAA, and aircraft also need to be appraised and inspected by a licensed aviation inspector. 

Working with an experienced lender helps the process go quickly and smoothly for customers. 

“We make sure that we cross all our T’s and dot all our I’s with the FAA,” Gault says.

The first step for The Bank of Tampa was to develop lending policies and products. Aircraft lending requires a specialized product, with the term and structure varying depending on the age and model of the aircraft. Loans for brand new aircraft purchased from a manufacturer are typically structured with a five- to seven-year term, with a balloon after five or seven years and a 20-year amortization. With used aircraft, there is often a shorter amortization period of 15 to 20 years.

The next step was to develop a marketing plan. “One of our greatest challenges was people just didn't know that we financed aircraft, and we are on a mission with our marketing team to get the word out that we are financing aircraft and that we have some very nice expertise,” says Gault.

The Bank of Tampa is currently marketing its aircraft lending across a variety of channels, including its website, social media, direct marketing to aircraft owners in the Tampa Bay area and print advertising in local publications that reach its target market. 

Nothing beats in-person interaction

It’s also important to get in front of aircraft brokers and salespeople to build and strengthen relationships. “We’re trying to hit all channels on a consistent basis, too, because you’ve got to show aviation brokers that you’re not just coming in and going out when times get a little rough,” says Gault. 

The community bank is content with a slow and steady takeoff; it expects that may take a year or two years to get its aircraft financing practice established. “Much like everything we do at The Bank of Tampa, we’re playing the long game,” says Gault. “But that’s what the aviation community wants to see: that you’re there year after year.”

“Oftentimes, it starts with, ‘I need X amount of money to buy this practice, and it turns into—on average—three to six bank products.”

—David Cushman, Genesee Regional Bank

Genesee Regional Bank; Rochester, N.Y.

Niche: Veterinarian and dental practices

Creating a specialty niche focusing on veterinarian and dental practices was a natural fit for Genesee Regional Bank in Rochester, N.Y. The $1.1 billion-asset community bank has a steady pipeline of potential customers thanks to the nearby University of Rochester Eastman School of Medicine and Dentistry and the Cornell University School of Veterinary Medicine in Ithaca, N.Y. 

Since its inception in 2015, the niche has proved to be lucrative for Genesee Regional Bank. It is currently the third- or fourth-ranked concentration within the community bank, with 75% of the professional practice team’s new business coming from dental practices specifically. 

Genesee provides primarily business or practice loans, such as for new equipment or expansion. For example, in 2023, the community bank helped a veterinarian practice finance the construction on a new $3 million building. 

Ease is a draw

To date, Genesee has added more than 130 new relationships from its niche lending practice. Most clients prefer to maintain one banking relationship, which has allowed the bank to manage personal banking services for deposit accounts, mortgages, HELOCs and credit cards. The bank also assists with some of the day-to-day needs of its business clients, including cash management and credit card processing. 

“Oftentimes, it starts with, ‘I need X amount of money to buy this practice, and it turns into—on average—three to six bank products,” says David Cushman, vice president and professional practice team leader at Genesee Regional Bank. 

Cushman adds that the medical field also has some of the lowest default rates, so it’s increased the bank’s credit quality overall, because the risk ratings on these credits are much stronger than the typical C&I loan.

Before launching the practice, Genesee Regional Bank did its homework. Its marketing and leadership teams conducted demographic research to make sure dental and veterinarian practices were a viable market. They also analyzed the competition to understand the financing products other financial institutions were offering and how they were structuring loans.

In doing so, the community bank found that the loan structure, pricing, term and amortization for these specialty products is different than for the typical C&I or CRE loan. Traditionally, other lenders have provided a dentist or veterinarian with 100% financing to buy the practice with no money down, and in many cases, a lender will provide more than 100% of the needed purchase price to give the borrower additional working capital to get a practice off the ground. 

“We had to create a separate credit policy that would allow us to not be making exceptions every time we submitted a new loan request,” says Cushman. “We can’t do everything others can do, but we’re pretty flexible to match some of those structures.” 

From there, it was a matter of looking at who the players were, who the community bank needed to partner with and who it could build relationships with to help build the program, notes Cushman. 

A key mark of its success: Almost 100% of its business comes from referrals. Cushman is now on the receiving end of inbound calls from dentists and vets who are buying a practice in the area and want to chat about financing.

Mountain Pacific Bank; Everett, Wash.

Niche: Maritime lending

Anyone who has thrown a line in the water knows that fishing can be a fickle pursuit. Some days they’re biting, practically jumping in the boat, and some days they’re not. Commercial fishing has similar ups and downs, and Mountain Pacific Bank in Everett, Wash., works with those customers through good times and bad.

Mountain Pacific Bank is a relative newcomer to maritime lending considering that, for many of its customers, the business of commercial fishing has been passed down through generations. The $700 million-asset community bank started lending to the sector in 2010 when it opened a branch in Ballard, a community in north Seattle that is recognized as a commercial fishing hub with deep Norwegian roots. The Ballard fleet, as it’s known, fishes the waters in the northwest up to Alaska for king crab, opilio crab, bairdi crab, halibut, black cod, Pacific cod, pollock and salmon.

Maritime lending is a relatively small but steady source of business for Mountain Pacific Bank. Its maritime loan portfolio is about $30 million, which represents about 5% of the bank’s total loan portfolio of $600 million. The community bank provides loans or lines of credit to fishermen to finance boats, equipment and supplies to carry them through the fishing season. In some cases, the bank will use the boat or the customer’s fishing permit or quota—the government-allowed catch for the season—as collateral. 

Its maritime lending practice also brings in deposit relationships, as well as other ancillary C&I businesses such as tendering, which is using boats to pick up the catch from fishing boats during the season and transport it directly to processors. 

Tough times for fisheries

Commercial fisheries are facing several issues that affect their businesses and create financial challenges for the local fleet. The industry is still dealing with the surplus of inventory created during the pandemic due to restaurants being closed, which has resulted in reduced prices. In addition, NOAA Fisheries, North Pacific Fishery Management Council and the Alaska Department of Fish and Game has closed certain segments of the crab fishing industry over the past two years in efforts to preserve the long-term sustainability of Alaska’s crab stock. 

“This has caused stress with our fishermen that we have been working through with them,” says Mark Duffy, president and CEO of Mountain Pacific Bank. Fisheries do close from time to time for various reasons, he notes, and when that happens, the community bank will meet with clients and work out solutions, such as deferring principal payments on a loan. During the pandemic, Mountain Pacific Bank also helped its maritime customers access Paycheck Protection Program loans. 

Duffy says the key to weathering down-cycles is to have good underwriting. He explains that the community bank likes to partner both with customers who work throughout the year in multiple fisheries or use their boats for tendering to generate additional income and with customers that have a good track record in the business. 

Growing Mountain Pacific Bank’s maritime lending business will involve understanding challenges and helping to come up with solutions, Duffy says. One concern is how the industry will transition to bring in a younger generation of fishermen in an industry where it is difficult for newcomers to finance boats and purchase the necessary government-regulated quotas. “We have helped finance some of the younger fishermen getting involved, but it is difficult,” he says.

Despite the current challenges, Mountain Pacific Bank remains committed to supporting its maritime customers and the local community. As an example, the community bank is planning to relocate its existing Ballard branch to a larger location. It recently purchased a shuttered Bank of America location and expects to start renovations before the end of this year and complete the move during the first half of 2025.

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