Riches in Niches

By Evan Sparks

In 2009, Bank Midwest—a community institution in Spirit Lake, Iowa—found itself with extra liquidity and room on its balance sheet. The bank’s then-CEO, Steve Goodenow, got in touch with an old friend who had worked in equipment leasing, and together they began building a nationwide healthcare equipment finance business.

“We had capacity on our balance sheet, and he had experience,” Goodenow says. They eventually decided to avoid leasing and grew a business that finances equipment for office-based doctors, dentists and veterinarians across the lower 48 states. With an average ticket size of $50,000, the loans help medical offices acquire tools like ultrasound machines, dental chairs and dermatological lasers.

The equipment finance arm has brought 6,000 new customers to the bank, Goodenow says, and “we are working on strategies to develop and deepen the relationships that we have” and help move these customers into the bank’s other products, including wealth management. Today, the equipment finance business accounts for about 15 percent of Bank Midwest’s $700 million loan portfolio.

Beyond the basics

The community banking model isn’t necessarily easy to execute—it requires solid understanding of banking fundamentals, from balance sheet management to underwriting and credit analysis—but it’s not an especially complex model. Take deposits from your community; make loans in the community—some mix of personal, residential, commercial or agricultural. Layer on a few payments products and you’re set.

But many community banks, like Bank Midwest, are complementing the core model with niche lending sidelines. These niches generate strong interest and fee-based income, balance some of the risks in the primary lending areas and bring new sets of customers into the bank.

Health savings accounts are a niche product for many banks, especially a vertical within a commercial lending group where they can deepen relationships with commercial customers, says Jim Gandolfo, chairman of ABA’s HSA Council and SVP in PNC’s treasury management group, since they provide an additional touch point in the commercial business and give employers a tool to constrain their health-care costs. “Community banks are the perfect place for the offering of an HSA because they have those relationships with the employers in their communities,” he says.

High-flying strategies

Pilot Bank in Tampa, Fla., for example, is a full-service $305 million community bank with a unique wing: private aircraft finance. Through its affiliate NAFCO, the bank makes loans for owner-flown aircraft throughout the country, providing credit opportunities for the hundreds of thousands of individuals in this middle-market segment.

This isn’t the world of private jets for business titans, notes Rita Lowman, Pilot Bank’s president. Instead, it’s a diverse market of piston-driven planes, turboprops, small jets, experimental aircraft and vintage planes—all owned by their pilots. These pilots love their planes, Lowman notes, which makes this a high-performing business for the bank. “It’s the best ratio of all our lending,” she says. “Our default ratio is a minimum.”

Pilot Bank also developed an online account feature that allows aircraft customers outside the Tampa Bay area to bring the rest of their banking business to the bank. It’s proven to be a strong niche for a community lender, if one that requires its own set of lending competencies. “You have to know how to insure it, you have to know the underwriting capabilities,” Lowman notes. “You have to make sure that plane’s being maintained.”


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