Up against several larger regional banks, Millennium Bank in Ooltewah, Tenn., knows it has to get creative to compete.
So roughly three years ago, management decided it needed to speed up its loan delivery if it hoped to attract and retain borrowers. While it holds one key competitive advantage over big banks — a willingness to make smaller loans that its larger counterparts often overlook — its credit analysis process was highly manual and didn’t accommodate quick turnaround on loans.
“From lender to lender, there was no consistency in the presentation of the analysis,” said John Hatfield, credit officer at the $139 million-asset bank. (Millennium Bank was formerly Community Bank & Trust before changing its name in 2016.)
That has changed since Hatfield joined the bank in 2014. He has led the community bank through a process of upgrading its technology to improve its ability to analyze loans and speed up its decision-making. Many small banks that lack the resources to hire more lenders have made similar investments in recent years in an effort to compete with not just banks, but also nonbank, online lenders. As a result, they can fund loans within hours or even minutes.
Hatfield said the investment has vastly improved the productivity of the bank’s lenders, and allowed the bank to dramatically increase loan volume without adding more staff.
The loan growth has been a boon to the bank’s bottom line as well. Millennium earned $2.4 million in 2017, up 64% from two years earlier and 120% from the end of 2014, according to Federal Deposit Insurance Corp. data.
Shortly after his arrival, Hatfield and Eve Osborne, an assistant vice president, began evaluating technology options to digitize and streamline Millennium’s credit analysis process.
“Everybody was kind of doing their own thing to a degree,” Osborne said. “And everything had to be manually keyed in, so it wasn’t very efficient.”
Further, lenders used a spreading tool for analyzing client financial statements and data that was “kind of clunky, no one ever used it the same, and the output was always different. There was no consistency … all the memos were, 'Your guess is as good as mine.' ”
Such a scenario is likely a familiar one at many community banks, Hatfield added. “I think for community banks, and especially community banks on the smaller side of things with less than a billion [in assets], this is pretty common,” he said.
David O’Connell, a senior analyst with Aite Group, agreed. At many smaller banks, “underwriters and loan officers are not spending enough time on lending,” he said. With so much manual input of data, “they’re spending too much time on tasks unrelated to growing the loan portfolio.”
Two years ago, Millennium Bank invested in a suite of products from Sageworks in Raleigh, N.C., designed to improve the lending process. These included software that eliminates the need for manual document entry, produces automated credit memos and reduces administrative workload, Hatfield said.
The bank can now answer small loan requests in seconds. This speed in decision-making means Millennium’s lenders are spending less time to complete smaller, uncomplicated deals while freeing them up to work on the more complex loan requests.
“As a small community bank in a town that has a lot of regional banks, because we are not always the price leader on rates, we have to find other ways to compete,” Hatfield said. “And I think one of the biggest ways we compete is our speed to market, getting an answer back quickly.”
For example that could mean writing a smaller value small-business loan — something less than $500,000 — that a bigger bank might feel doesn’t represent enough value to spend time on. Or a commercial loan with a quick turnaround time, “Say two, three, four people going into a deal together to buy a piece of real estate, they want to walk in a get it done quickly so they can get that property.”
The technology also enabled Millennium to achieve a goal of increasing its loan portfolio without bringing on extra staff. Since the investment, loan officers at Millennium Bank have increased loan production by 25%, Hatfield reported. Loan volume, meanwhile, has increased by more than 50% in the last two years, to nearly $125 million at Dec. 31.
“We’ve seen our loan growth increase pretty well without adding any headcount,” Hatfield said.
Millennium did not disclose how much it spent to improve its lending and underwriting processes, but O’Connell said that such investments typically pay off quickly for smaller banks.
“They want to lend at scale, but they don’t want to have to hire a certain number of loan officers to do so,” he said.
