Smart Ways to Find Loan Growth

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In a long career focused on credit risk, I’ve never found myself saying that the industry’s biggest lending challenge is finding loans to make.

But no one can ignore the lackluster and even declining demand for new loans pervading most of the industry, a phenomenon recently confirmed by the QwickAnalytics® National Performance Report, a quarterly report of performance metrics and trends based on the QwickAnalytics Community Bank Index.

For its second quarter 2021 report, QwickAnalytics computed call report data from commercial banks $10 billion in assets and below. The analysis put the banks’ average 12-month loan growth at negative -0.43 basis points nationally, with many states showing declines of more than 100 basis points. If not reversed soon, this situation will bring more troubling implications to already thin net interest margins and stressed growth strategies.

The question is: How will banks put their pandemic-induced liquidity to work in the typical, most optimal way — which, of course, is making loans?

Before we look for solutions, let’s take an inventory of some unique and numerous challenges to what we typically regard as opportunities for loan growth.

  • Due to the massive government largess and 2020’s regulatory relief, the coronavirus pandemic has given the industry a complacent sense of comfort regarding credit quality. Most bankers agree with regulators that there is pervasive uncertainty surrounding the pandemic’s ultimate effects on credit. Covid-19’s impact on the economy is not over yet.
  • We may be experiencing the greatest economic churn since the advent of the internet itself. The pandemic heavily exacerbated issues including the e-commerce effect, the office space paradigm, struggles of nonprofits (already punished by the tax code’s charitable-giving disincentives), plus the setbacks of every company in the in-person services and the hospitality sectors. As Riverside, California-based The Bank of Hemet CEO Kevin Farrenkopf asks his lenders, “Is it Amazonable?” If so, that’s a market hurdle bankers now must consider.
  • The commercial banking industry is approaching the tipping point where most of the U.S. economy’s credit needs are being met by nonbank lenders or other, much-less regulated entites, offering attractive alternative financing.

So how do banks grow their portfolios in this environment without taking on inordinate risk?

  • Let go of any reluctance to embrace government-guaranteed lending programs from agencies including the Small Business Administration or Farmers Home Administration. While lenders must adhere to their respective protocols, these programs ensure loan growth and fee generation. But perhaps most appealing? When properly documented and serviced, the guaranties offer credit mitigants to loan prospects who, because of Covid-19, are at approval levels below banks’ traditional standards.
  • Given ever-present perils of concentrations, choose a lending niche where your bank has both a firm grasp of the market and the talent and reserves required to manage the risks. Some banks develop these capabilities in disparate industries, ranging from hospitality venues to veterinarian practices. One of the growing challenges for community banks is the impulse to be all things to all prospective borrowers. Know your own bank’s strengths — and weaknesses.
  • Actively pursue purchased loan participations through resources such as correspondent bank networks for bankers, state trade groups and trusted peers.
  • Look for prospects that previously have been less traditional, such as creditworthy providers of services or products that cannot be obtained online.
  • Remember that as society and technology change, new products and services will emerge. Banks must embrace new lending opportunities that accompany these developments, even if they may have been perceived as rooted in alternative lifestyles.
  • In robust growth markets, shed the reluctance to provide — selectively and sanely — some construction lending to help right the out-of-balance supply and demand currently affecting 1 to 4 family housing. No one suggests repeating the excesses of a decade ago. However, limited supply and avoidance of any speculative lending in this segment have created a huge value inflation that is excluding bankers from legitimate lending opportunities at a time when these would be welcomed.

Bankers must remember the lesson from the last banking crisis: Chasing growth using loans made during a competitive environment of lower credit standards always leads to eventual problems when economic stress increases. This is the “lesson on vintages” truism. A July 2019 study from the Federal Deposit Insurance Corp. on failed banks during the Great Recession revealed that loans made under these circumstances were critical contributors to insolvency. Whatever strategies the industry uses to reverse declining loan demand must be matched by vigilant risk management techniques, utilizing the best technology to highlight early warnings within the new subsets of the loan portfolio, a more effective syncing of portfolio analytics, stress testing and even loan review.

Five Ways PPP Accelerates Commercial Lending Digitization

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The Small Business Administration’s Paycheck Protection Program challenged over 5,000 U.S. banks to serve commercial loan clients remotely with extremely quick turnaround time: three to 10 days from application to funding. Many banks turned to the internet to accept and process the tsunami of applications received, with a number of banks standing up online loan applications in just several days. In fact, PPP banks processed 25 times more loan applications in 10 days than the SBA had processed in all of 2019. In this first phase of PPP, spanning April 3 to 16, banks approved 1.6 million applications and distributed $342 billion of loan proceeds.

At banks that stood up an online platform quickly, client needs drove innovation. As institutions continue down this innovation track, there are five key technology areas demonstrated by PPP that can provide immediate value to a commercial lending business.

Document Management: Speed, Security, Decreased Risk
PPP online applications typically provided a secure document upload feature for clients to submit the required payroll documentation. This feature provided speed and security to clients, as well as organization for lenders. Digitized documents in a centrally located repository allowed appropriate bank staff easy access with automatic archival. Ultimately, such an online document management “vault” populated by the client will continue to improve bank efficiency while decreasing risk.

Electronic Signatures: Speed, Organization, Audit Trail
Without the ability to do in-person closings or wait for “wet signature” documents to be delivered, PPP applications leveraged electronic signature services like DocuSign or AdobeSign. These services provided speed and security as well as a detailed audit trail. Fairly inexpensive relative to the value provided, the electronic signature movement has hit all industries working remotely during COVID-19 and is clearly here to stay.

Covenant Tickler Management: Organization, Efficiency, Compliance
Tracking covenants for commercial loans has always been a balance between managing an existing book of business while also generating loan growth. Once banks digitize borrower information, however, it becomes much easier to create ticklers and automate tracking management. Automation can allow banker administrative time to be turned toward more client-focused activities, especially when integrated with a document management system and electronic signatures. While many banks have already pursued covenant tickler systems, PPP’s forgiveness period is pushing banks into more technology-enabled loan monitoring overall.

Straight-Through Processing: Efficiency, Accuracy, Cost Saves
Banks can gain significant efficiencies from straight-through processing, when data is captured digitally at application. Full straight-through processing is certainly not a standard in commercial lending; however, PPP showed lenders that small components of automation can provide major efficiency gains. Banks that built APIs or used “bots” to connect to SBA’s eTran system for PPP loan approval processed at a much greater volume overall. In traditional commercial lending, it is possible for data elements to flow from an online application through underwriting to final entry in the core system. Such straight-through processing is becoming easier through open banking, spelling the future in terms of efficiency and cost savings.

Process Optimization: Efficiency, Cost Saves
PPP banks monitored applications and approvals on a daily and weekly basis. Having applications in a dynamic online system allowed for good internal and external reporting on the success of the high-profile program. However, such monitoring also highlighted problems and bottlenecks in a bank’s approval process — bandwidth, staffing, external vendors and even SBA systems were all potential limiters. Technology-enabled application and underwriting allows all elements of the loan approval process to be analyzed for efficiency. Going forward, a digitized process should allow a bank to examine its operations for the most client-friendly experience that is also the most cost and risk efficient.

Finally, these five technology value propositions highlight that the client experience is paramount. PPP online applications were driven by the necessity for the client to have remote and speedy access to emergency funding. That theme should carry through to commercial banking in the next decade. Anything that drives a better client experience while still providing a safe and sound operating bank should win the day. These five key value propositions do exactly that — and should continue to drive banking in the future.

A Small Bank’s Big Bet on AI

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Brex.pngBuilding a board with an appetite for innovation can be difficult, but the small group that oversees C3bank is decidedly different.

The institution was originally founded as a quiet community bank serving the Inland Empire region of southern California in 1981.

That same year, Evert “Chooch” Alsenz and Paul Becker, now board members at C3bank, formed an engineering partnership that would go on to fund the development of the world’s first quartz-based solid-state gyroscope, a patented technology used in brake systems for millions of automobiles. Subsequent ventures from the duo produced military communications antennas, lightning diversion strips and surge protection equipment for aircrafts.

Alsenz and Becker are no strangers to invention, a background they brought with them when they joined commercial real estate expert Michael Persall to buy C3bank in a deal that closed in 2014.

Alsenz and Becker’s shared history helps one understand how a four-branch, $356 million institution has been able to remake itself as a tech-savvy commercial bank. From the moment they acquired it, Persall, Alsenz and Becker, who also serve as principals for investment company ABP Capital, worked to transform the bank into an entrepreneurial shop with a specialty in commercial real estate lending. In 2019, the group moved the bank’s headquarters to Encinitas, California, where ABP is based, and changed its name to C3bank.

Understanding the entrepreneurial owners at C3bank also helps explain how the group was able to ink a new partnership to develop an artificial intelligence-based commercial lending tool just a few years after the change in ownership.

To strengthen the bank’s CRE lending program, bank chairman Persall approached technologist Shayne Skaff to develop a custom platform for assessing and monitoring CRE loans. Initially, Skaff wasn’t sold on the idea. When he dug deeper, though, he discovered that commercial lending technology was years behind the solutions for residential loans. That lag presented an opportunity, so he started working with the teams at ABP Capital and C3bank in June 2018 to build a solution that would eventually become known as Blooma.

Skaff brought developers into the institutions to learn about their respective underwriting processes. The goal for the project was to streamline the commercial underwriting process in a way that made it more dependent on science, than on art. Science, the parties believed — in this case, AI —  would lead to thorough, well-researched deals.

“Our board and ownership group continues to think AI can have a big impact on banking,” says A.J. Moyer, the CEO of C3bank. “[They] push that thought process and believe a lot of underwriting can be supplemented.”

Traditionally, lenders spend a lot of time manually gathering the data that factors into a potential deal. Blooma allows banks to outsource that process to its AI engines. It taps into third party databases to extract information about local real estate markets and scours the web for other relevant information, such as neighborhood crime statistics and negative news.

Blooma then scores CRE deals on a 100-point scale that measures the probability that it will fit within the bank’s risk profile and portfolio needs. Users can drill down into the score to see exactly what factors influenced the score. As more deals pass through the system, Blooma’s AI gradually learns from the bank’s process to prioritize new opportunities.

The result? The process of onboarding and assessing a potential deal can shrink from weeks to minutes.

“[Q]uick yet accurate decision-making can be a strategic advantage for your institution,” says Moyer. “If I have a toolset that, when a potential deal comes my way, I can quickly confirm what that asset’s worth, [then] I can sign that deal faster than anyone else.”

In addition to the underwriting assist, Blooma provides a digital hub for managing deal documents and workflows. “We’ve gotten out of a spreadsheet environment,” says Moyer. “The world we’re in is more dynamic. Everyone can go [to Blooma] to see what deals we’re working on and what’s mission critical.”

Blooma was a finalist in the Best Business Solution category of this year’s Best of FinXTech Awards. Shield Compliance, a Seattle-based fintech helping institutions bank cannabis-related businesses, was also a finalist. The winner in this category was Brex, which partnered with Bank of the West to launch a small business-focused credit card that’s grown the bank’s revenue by more than 50% from clients using the co-branded card. You can learn more about that partnership here: How Innovative Banks Cards to Grow Revenue, Earn Loyalty.

Six Reasons Banks Are Consenting to C-PACE Financing

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lending-8-13-19.pngBanks looking to stay abreast of emerging commercial real estate trends should consider an innovative way to fund certain energy improvements.

Developers increasingly seek non-traditional sources to finance construction projects, making it crucial that banks understand and embrace emerging trends in the commercial real estate space. Commercial Property Assessed Clean Energy (C-PACE) financing is one of the fastest-growing source of capital for new construction and historic rehabilitation developments throughout the country, and banks are jumping on board to consent to the use of this program.

C-PACE financing programs allow for private funders, like Twain Financial Partners, to provide long-term, fixed-rate financing for 100% of the cost of energy efficiency, renewable energy and water conservation components of real estate development projects. This financing often replaces more expensive pieces of the construction capital stack, like mezzanine debt or preferred equity. Currently, over 35 states have passed legislation enabling C-PACE; new programs are currently in development in Illinois, Pennsylvania, New York, among others.

C-PACE financing can typically fund up to 25% of the total construction budget, is repaid as a special assessment levied against the property and is collected in the same manner as property taxes. Like other special assessments, a lien for delinquent C-PACE assessments is on par with property taxes. Due to the lien priority, nearly all C-PACE programs require the consent of mortgage holders prior to a C-PACE assessment being levied against the property.

C-PACE industry groups report that over 200 national, regional and local mortgage lenders have consented to the use of this type of financing to date. While there are many reasons mortgage holders consent to C-PACE, below are the top six reasons banks should consider consenting:

C-PACE Financing Cannot be Accelerated. In the event of a default in the payment of an annual or semi-annual C-PACE assessment obligation, only the past due portion of the C-PACE financing is senior to a mortgage lender’s claim. For example, assume Twain Financial provided $1 million of C-PACE financing to a project, with a $100,000 annual assessment obligation due each year over a 20-year term. In the event of non-payment of the C-PACE assessment in year 1, Twain could not accelerate the entire $1 million of C-PACE. Rather, Twain’s lien against the property is limited to $100,000.

C-PACE Financing Does Not Restrict a Senior Lender’s Foreclosure Rights. Unlike other forms of mezzanine financing, C-PACE funders do not require an intercreditor agreement with a senior lender. Rather, the senior lender can foreclose on its mortgage interest in the property in the event of a default on the senior lender’s debt, in the same manner as if it was the sole lienholder on the property. The C-PACE lender does not have any right to prevent, restrict, or otherwise impact the senior lender’s foreclosure.

Senior Lenders May Escrow the C-PACE Assessment. In many cases, senior lenders will require a monthly escrow of the annual C-PACE assessment obligation, in the same manner as property tax and insurance escrow requirements. The C-PACE escrow serve to further mitigate risks associated with the failure to pay the C-PACE assessment when due.

C-PACE Funds Fully Available as of Date of Closing. C-PACE financing typically closes simultaneous with the senior lender. At the closing date, all C-PACE funds are deposited into an escrow account, to be withdrawn as eligible costs are incurred. Senior lenders have the reassurance of knowing the funds are available to be drawn as of the date of closing.

C-PACE Financing May Increase the Value of the Senior Lender’s Collateral. In most states, a threshold requirement for C-PACE financing is that an engineer establish the savings-to-investment ratio is greater than one. In other words, the savings achieved by the financed improvements over the term must outweigh the cost of the improvements. PACE projects directly reduce a building’s operating costs, increasing its net operating income and valuation.

Relationships matter. Nearly every C-PACE project involves a lender’s customer who wants or needs to complete a project. C-PACE funded projects make good business sense for the building owner and the building’s mortgage lender.

The Huge Lending Opportunity You’re Overlooking

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entrepreneur-4-12-19.pngSince opening her Brooklyn-based gym, HIIT Box, four years ago, Maryam Zadeh has been featured for her fitness expertise in publications like Marie Claire magazine and Self.com. This exposure has caused business to explode.

The number of clients and revenue have tripled, she says. HIIT Box has relocated three times in four years to pursue more space. And there’s still a waitlist to join.

But despite this success, Zadeh has struggled to obtain the capital she needs to keep up with the rapid growth of her business. She initially invested her own money—a $13,000 inheritance—and later obtained $35,000 from American Express (her payment processor, through its working capital program) and two smaller loans totaling $27,000 from the online lending platform Biz2Credit.

But it wasn’t enough, and other lenders turned her down when she sought additional capital to move into a bigger space. So, she turned to customers to fill the funding gap, offering her 40 largest clients a discount if they paid a lump sum up front. Twenty-three clients took advantage of her offer. “That’s what gave us that big chunk of money [for] construction, because no lender would give it to us,” says Zadeh.

Growing pains like these are common among female entrepreneurs.

Women own more than 11 million businesses in the U.S., or 39 percent of businesses, according to a 2017 study commissioned by American Express—a number that has risen over the past 2 decades. A Bank of America survey published last year found that 56 percent of female entrepreneurs plan to grow their business over the next five years. To do so, however, many of them will need to raise capital.

“Women-owned firms face persistent funding gaps and funding source mismatches,” according to a study published in 2016 by the Federal Reserve Banks of New York and Kansas City. Twenty-eight percent of women-owned firms applying for a loan over the previous year were not approved for any funds, and 64 percent obtained less money than they needed.

Some banks have developed educational programs to better engage this potentially lucrative demographic.

Renasant Bank, based in Tupelo, Mississippi, launched its “Nest” program in March, which provides financial education to female entrepreneurs. It’s part of a larger bank-wide program focused on developing female leaders, both in the community and within the bank.

Tracey Morant Adams, the chief community development and corporate social responsibility officer at the $13 billion asset bank, saw that female entrepreneurs often weren’t as comfortable discussing the financial position of their business. They also didn’t understand the financing options available to them and were more likely to rely on personal wealth—dipping into their retirement savings, for example—to fund their small business.

Renasant will use a lunch-and-learn format to explain financial basics—how to read pro forma financial statements, for example—so women can gain the confidence and knowledge they need to understand their financial position. Renasant will also explain the funding solutions available, and how to understand which one is the best fit for their business—when a line of credit is more appropriate than a credit card, for instance.

Ultimately, at least in theory, some of these women will seek a loan or deepen their relationship with the bank. “You have to be intentional and deliberate in your efforts to reach out and find that business,” says Adams. “The Nest is going to allow us to be more intentional, particularly in that female space.”

Bank of America’s study asked female entrepreneurs to identify solutions to address the funding gap women face. Twenty-four percent pointed to education—echoing the importance of programs like Renasant’s.

But even more women—42 percent—pointed to the need for gender-blind financing to reduce the role that unconscious bias—and outright sexism—play in the loan application process.

When she’s applied for capital, Zadeh—the CEO and sole founder of her company—has been asked where her (male) partner is. Some have assumed she was running a yoga studio, not a gym. She’s even been asked if she can do push-ups. (She can.)

Women—and small business owners in general—are more likely to be approved for a business loan by a small bank than any other option, according to the Fed. Twitter_Logo_Blue.png But despite higher approval rates at small banks, women are more likely to seek funding from a large bank or online lender.

business-loans-chart.png 

Stories like Zadeh’s may explain what’s driving women to online lenders and larger banks. “Everything is driven by the data, and there is no possibility of any kind of gender bias,” says Rob Rosenblatt, the head of lending for the online lending platform Kabbage.

Applying online, in theory, reduces bias, so a female applicant could be more optimistic that her loan would be approved.

For women seeking to grow their businesses, access to capital can make a big difference—and expand lending opportunities for the banks that enhance their efforts to this group.

Seven Costly Mistakes Banks Make With Their Small Business Loan Applications

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lending-10-30-17.pngAll aspects of banking are going through a remarkable technological evolution. Customers are clamoring for all things digital, from making deposits to easily paying the babysitter. Small business owners are not immune. They are now starting to demand that their bank embrace technology after seeing the benefits that come from an accessible, digitized lending experience online, thanks in part to the technology being utilized by modern banks and alternative lenders.

Here are seven costly mistakes banks make with their current loan applications:

1. Your loan application process takes too much time.
Does this sound familiar? Your potential borrower drives to a branch to pick up a paper application, fills it in, realizes he or she doesn’t have all the information and leaves the bank, returning the application to the branch days or weeks later. Your team looks it over, and there are still missing documents, so the whole process from beginning to end can take weeks and sometimes months.

It’s a universal struggle in lending. With the correct technology, the documents your staff needs can be uploaded easily online, automatic reminders can be sent to the borrower for missing documents, and when terms are offered the technology will automatically request the documents your bankers need. It’s amazing how much time technology can and will save your team.

2. Your applications are still only on paper.
It’s a risky business when your prospective borrower goes to your website to apply for a loan only to be met with a prompt to “contact us to apply.” Your most eager customers will call but who knows where everyone else will go? Are you losing business to alternative lenders? That’s a possibility.

3. You need to reduce the workload for your team.
Let’s be honest. Your staff wears many hats in today’s modern bank branch. More and more branch managers are having to chase after documents for small business loans. Take the burden off the team and let technology do the hard work. Look for technology to utilize automation to request missing documents via a secure portal and let your managers get back to what really matters: providing great customer service.

4. Your bank needs to conform to the Americans with Disabilities Act (ADA).
Is your current application accessible to the blind or those who have low vision? An interactive pdf that your borrower can fill out and send via email will no longer be acceptable as those forms are often not accessible to blind people who use screen readers. Your bank needs technology that has created software that exceeds current standards and requirements for accessibility.

5. Reporting and analytics take too much time.
You and your team need a transparent workflow. When your team has the analytics and the ability to track how many people are viewing, starting, and completing your application, your team can do a better job of forecasting the week ahead along with creating targeted marketing campaigns.

6. Your bank struggles with data.
Creating, storing, and using data will become more and more important as new regulations are created. Use technology to your advantage and gain a significant competitive edge through automatic reminders to complete applications and the ability to gather data for retarget marketing.

In addition, reduce risk and time spent rekeying information by having a central location for data. Your goal should be to have the borrower enter their information when they are ready. No longer would your staff have to waste valuable time rekeying information from paper.

7. Communication within the bank is less than stellar.
You are ready to make internal collaboration easier and knowing where each loan is in the process gives visibility so everyone on your team can stay on track and know what’s coming their way, helping facilitate cross departmental communication to accelerate the loan’s end-to-end time.

Increased efficiency, profitability, productivity and enhanced customer experience are all reasons why digitizing your loan application should be a top priority for next year. For example, in most banks, the administrative and overhead costs to underwrite a $50,000 loan and a $1 million loan are essentially the same, making $50,00 loans less attractive to the bank. Simplifying the process and achieving greater efficiency may grow your loan volume as well. It’s time to make the shift from traditional applications and revolutionize the lending experience for your borrower.

WSFS Financial and LendKey Partner to Refinance Student Debt

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With over $1.4 trillion in total student loan debt in the U.S., refinancing is growing in popularity as young professionals seek to get the lowest rates at manageable payment terms. With upwards of 44 million people currently paying off student loan debt, refinancing is a trend that’s quickly picking up steam.

For banks, this represents a huge opportunity to help their existing customers refinance student loans, as well as attract new ones. But with established fintech players like SoFi and CommonBond already established in the student debt refinancing space, banks are beginning to develop technology-oriented partnerships to compete in a still underserved market.

Consider the case of WSFS Financial Corp., headquartered in Wilmington, Delaware, which has 77 offices in Delaware, Pennsylvania, Virginia and Nevada. In addition to its core banking services, WSFS realized there was an opportunity to expand its consumer lending portfolio to a new generation of customers—mainly students and recent college graduates.

Given this demographic’s average student debt of $35,000, there was an obvious opportunity for the bank to offer a student loan and refinancing product. At the time, however, WSFS lacked the internal technology resources to gain traction in the market. This, in addition to regulatory and compliance hurdles related to the student lending asset class, led WSFS to seek out a technology partner with experience in the student lending space.

The result was a partnership with LendKey, a lending platform and online marketplace that enables consumers to easily refinance their student loans. New York-based LendKey works with over 300 credit union clients, with a combined loan portfolio of over $700 million, to provide technology that enables consumers to find the best refinancing options at their local credit unions.

“We were interested in partnering [with LendKey] because we didn’t really have a student loan program, and they have a very good one, as well as a good delivery method to get to borrowers,” explains Lisa Brubaker, senior vice president and director of retail strategy at WSFS. “It helped fill our product gap.”

With WSFS’s student loan refinancing offerings available on the LendKey marketplace, WSFS was in position to enter the market with an experienced technology partner. LendKey also allowed WSFS to set the credit risk and underwriting standards for all loans, ensuring a balanced lending portfolio. LendKey helped WSFS’s student refinancing program to comply with all regulations. The new venture was launched once the two companies had agreed to team up.

Initially, WSFS relied on its own internal pricing on student loan products, and although its rates and offerings were solid, WSFS had entered the market rather quietly. The promotional support was light, and pricing wasn’t competitive with many other lenders. During the first two years of the program, WSFS generated less than $1 million in total loan disbursements—not the kind of market traction that was hoped for.

What followed next is indicative of what makes WSFS’s partnership with LendKey so innovative and (now) successful. In 2016, WFSF engaged LendKey’s account management team, seeking LendKey’s expertise on how the program could be more visible and competitive, without significantly impacting credit risk. The LendKey team evaluated WSFS’ competitiveness in the student refinancing market and made some recommendations. In response, WSFS repriced its loan program and placed itself prominently on the LendKey Network, a market for lenders to both directly promote and fulfill refinancing loans. With this pivot, WSFS’s refinancing program became more readily available to borrowers in every state within the bank’s market footprint.

Since the repricing and strategic shift to the LendKey Network, WSFS has been experiencing significant success in the student loan refinancing marketplace. WSFS’s student loan portfolio volume has grown by a whopping 54,000 percent since 2013, the year prior to the initiation of the LendKey partnership. And by performing an initial credit check on all applicants, LendKey is helping WSFS make faster decisions on whether to approve individual borrowers.

Today, LendKey continues to work with WSFS to enhance its student lending products, providing additional data analysis and credit risk reporting. LendKey’s insights-driven approach is enabling WSFS to grow its portfolio and reach new customers in a highly competitive marketing—while simultaneously maintaining strong credit risk controls.

“Our view is to take the best-of-breed from marketplace lenders [like LendKey] to deliver to our customers without losing that personal touch that we value,” Brubaker says.

How NBKC Bank Made Mortgages User Friendly with Roostify

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For consumers, getting a mortgage can be a daunting task. Securing a home loan can take weeks (or months) from application to closing, in large part because the process often still requires offline and manual tasks. That’s not an ideal scenario for consumers who want to get in their new home, or for lenders trying to deliver a top-notch customer experience.

That was the challenge facing NBKC Bank, a full-service bank headquartered in Overland Park, Kansas. In 2014, the consumer-direct bank, which generated $2.5 billion in loans last year, realized that their internet application system was becoming a liability that could hold the bank back from further growth.

NBKC allowed clients to apply for loans online in 2014, but the application’s limited functionality didn’t provide the kind of experience the bank wanted to offer its customers, and generated unnecessary extra work for the loan officers. Based on older technology, the online application’s user interface was beginning to look obsolete. Making matters worse, the technology that powered the application was no longer completely reliable. “We often heard from borrowers that they completed [the application],” recalls Dan Stevens, the bank’s vice president of mortgage strategy. “But we didn’t always receive it.”

Another pain point was that the existing application couldn’t support a full online experience. Loan officers would still need to call the consumer after the application was submitted to complete the application. Due to the bank’s unreliable application system, consumers were sometimes asked for information they had already provided online, which was frustrating for everyone involved.

To address these problems, NBKC partnered with Roostify, a San Francisco-based fintech startup that provides a mortgage loan platform that enables faster closings and a more efficient, transparent loan process. The company bills itself as helping lenders provide user-friendly online applications, and offering online document and collaboration tools to cut down on the time-consuming manual tasks that can stretch out a mortgage approval process.

NBKC chose Roostify after seeing a demo highlighting the user experience for both the borrower and loan officer. Roostify provides NBKC with a highly usable consumer-facing online application, which the bank could white-label to present consumers with a branded NBKC online experience.

Through Roostify, NBKC’s customers can now apply for a mortgage in as little as 20 minutes without the need for a phone call or manual intervention from a loan officer. More customers are completing applications, too. Stevens confirmed that the updated process was a hit with NBKC’s customers. “Expectations [for an online experience] are super high. Hearing no complaints, with an extremely high usage and completion rate, shows us that it’s well received by our borrowers.”

NBKC was also able to use Roostify’s automation features to help improve internal productivity by reducing manual processes, particularly around documentation.

“One of the biggest selling points for us in 2014 was the creation of a customized required document list,” explained Stevens. “Not every loan application requires the same documents, so for it to be able to match the borrower’s personal situation with the loan program they were wanting, and giving them this information without needing to ever talk to a loan officer, was an outstanding upgrade in our workflow.”

Eliminating repetitive manual tasks like generating document lists and going over applications by phone freed up time for NBKC’s loan officers to process more loans, contributing to an overall increase in productivity. Between 2014 and 2016, NBKC saw their average loans nearly double, from 6.5 to 12.2 loans per loan officer per month.

Banks and fintech startups alike face stiff competition in most areas of financial services, and banks like NBKC highlight the importance of offering a seamless digital customer experience. The bank’s partnership with Roostify illustrates how savvy use of technology platforms can also benefit the lender’s bottom line.

When a Banker Becomes an Entrepreneur

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James “Chip” Mahan has a colorful past as a banker who turned himself into a tech entrepreneur. He went from a failed attempt at a hostile takeover of his hometown community bank at the age of 31 to launching the first internet bank in the 1990s, Security First Network Bank, as well as developing a successful technology company that sold internet applications to banks called SQ Corp. Later, he founded what is now one of the largest Small Business Administration lenders in the country, Live Oak Bank, and used it as a jumping off point for a technology platform that is sold to other banks, nCino, which speeds up loan processing.

He speaks here with Naomi Snyder, editor of Bank Director digital magazine on the following topics:

  • The need for a new commercial lending platform
  • The two things customers most want to know
  • Advice for entrepreneurial minded bankers
This video first appeared in the Bank Director digital magazine.

Franklin Synergy Bank Partners with Built Technologies to Streamline Construction Lending

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For banks that finance construction projects, managing their loan portfolio—and particularly the draw disbursement process—can be an especially burdensome undertaking.

Most construction projects financed by a bank contain a draw schedule, which is a timeline of intervals for which funds will be disbursed to borrowers and contractors for use. The goal for banks is to make progressive payments as work is completed. Disbursing funds before work is completed or materials have been delivered puts the bank’s capital at risk. Late disbursement often entails delayed projects and poor client satisfaction.

The problem is, many banks have an arduous, time consuming—and ultimately costly—process for fulfilling draw requests. Which is exactly the challenge that Franklin Synergy Bank (FSB) had been facing for quite some time. Headquartered in Franklin, Tennessee, FSB operates with 12 branches, servicing over $400 million in construction and development (C&D) loans. FSB’s loan administration and draw disbursement processes were fraught with administrative headaches: large staffing overhead, heavy phone call volume, duplicate data entry into multiple systems, use of multiple spreadsheets, unmanageable email communications and antiquated fax and paper usage.

In short, FSB’s loan administration approach was not only costing the bank time and money, but it wasn’t allowing it to deliver a top-notch customer experience for their clients. Seeing technology as the most plausible solution to these issues, FSB decided to partner with Nashville-based enterprise software company Built Technologies. A web-based application with mobile functionality, Built’s application is designed to simplify draw management and disbursement for construction lenders like FSB. Built also allows clients and borrowers to manage the loan from their end, delivering a more seamless customer experience. In addition, borrowers and contractors gain more visibility into the draw management process, increasing confidence in their lending institution.

Prior to partnering with Built and implementing the firm’s platform, FSB had to handle most of the draw process manually. A single residential construction loan draw might involve an average of eight back-and-forth emails prior to approval, in addition to significant manual data entry. As a result, FSB’s loan portfolio had grown more expensive to manage, harder to report against and more prone to human error.

After the Built implementation, FSB no longer needs to receive emails to manage construction draws. Upon closing, the bank loads a new loan into the Built platform and grants the borrow, builder and inspector access based on specific user-based permission levels. The borrower or builder can then simply log into the platform and request a draw, triggering an automated series of events within a pre-defined workflow that facilitated only a single approval touchpoint at the end of the process on FSB’s end. Built then releases funds in an automated and fully documented fashion that saves time and energy across all user groups—including builders, borrowers, loan officers and inspectors. The result is providing construction borrowers the same level of access, visibility and convenience that retail customers experience when they bank online.

Adopting the Built platform has allowed FSB to streamline its construction loan administration team from four employees to two full-time and one part-time staff members. And the team went from managing roughly 750 loans at any given time to an increased capacity of over 1,000 loans. FSB was also able to reduce its draw processing time from 24 hours to a mere 30 seconds, resulting in both an increase in interest income and client satisfaction. Human error has been substantially decreased, and Built’s reporting capabilities have provided FSB greater insight into its construction lending portfolio. FSB can now easily identify, and proactively address, overfunded draw requests and stalled construction projects. In fact, this might be the most innovative aspect of the Built and FSB partnership, because it enables the bank to manage its construction loan risk better than its competitors.

The partnership between FSB and Built is a fitting example of a regional partnership setting the pace for what’s likely to be a national trend. Manual and paper processes are a productivity drain on businesses in any industry in terms of time, money and customer satisfaction. And with the enormous amounts of capital invested in building projects, nowhere is this more evident than the construction lending sector. Once other lenders realize the return on investment that merging technology with their loan management and draw disbursement processes can result in, similar partnerships are sure to follow.

This is one of 10 case studies that focus on examples of successful innovation between banks and financial technology companies working in partnership. The participants featured in this article were finalists at the 2017 Best of FinXTech Awards.