Competition Drives Commerce, UniBank To Get Creative
Local banks find new loan niches in boats, planes
Sometimes loans soar. Sometimes they dive. Sometimes it's smooth sailing. And sometimes the water's choppy.
But no matter what, making loans on boats and planes is a lot more interesting - and less competitive - than making a loan on the latest Chevy.
In both cases, the banks were motivated by a desire to supplement their traditional products with a steady, and lucrative, niche offering.
Un-Traditional Lending
According to Redding, boat loans make up a significant portion of his bank's consumer loan portfolio, replacing more traditional car loans, for example, as manufacturer's own financing companies push the community bank out of that picture.
"The reason we're in it is because traditional consumer lending went away," Redding said. "Used to be, if I needed a car loan, I'd go to my friendly community bank. Now, look at GMAC, Toyota Credit. They came in and that market disappeared."
At Commerce, Thompson said the bank has financed hundreds of small aircraft purchases in the past year or so, usually in the range of $100,000 to $500,000. Unlike UniBank, however, Commerce finances small aircraft purchases throughout the country, as opposed to limiting themselves to just the northeast, said Thompson.
Commerce is one of about a dozen banks nationwide that finance small aircraft purchases, according to Thompson.
To minimize risk, Commerce focuses on smaller, single-engine, light aircraft purchased by a private individual, and not larger corporate jets. Thompson expects the efforts to yield approximately $200 million to the bank's coffers in the next few years.
UniBank does indeed limit themselves to underwriting only regional loans, but Redding said they may have a leg up on Commerce's approach because they bought the brokerage firm that was originally selling their loans to UniBank, and now act as both a national broker and regional underwriter.
UniBank also underwrites much larger loans than Commerce, ranging from the low six figures up to $5 million or more for the largest, most opulent "vessels," Redding said.
Commerce gets its leads from a national broker network, which refers customers to the bank.
Financial Specialist
Both UniBank and Commerce's forays into niche lending are not uncommon in today's banking industry, where the need to distinguish oneself from the pack is crucial, said David Floreen, senior vice president of the Massachusetts Bankers Association.
"Most banks do traditional lending, mortgages, small business loans, maybe motor vehicle lending," Floreen said. "But what you need is to be a specialist, a go-to entity in something unique or special. This kind of thing is reflective of each financial institution or each bank looking at their goals and saying, 'OK, what can we do that would add value, or be a specialty kind of lending?'"
"It's been a good business niche," said Commerce's Thompson. "We're a modest community bank, a billion dollar bank, and we're always looking to find opportunities where expertise and talent can give us a competitive advantage."
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