Independent Banker - February 2024 - 28

PORTFOLIO
FOCUS LENDING
Sharing the load with
participation loans
When a bank wants to provide a loan above its lending limits, it's time to
turn to participation loans. But what are the benefits and risks involved
for community banks? By Beth Mattson-Teig
anks that can get comfortable
navigating underwriting risks
are discovering the benefits of
participation loans.
Participation loans can be an
avenue to both grow and diversify
loan portfolios. " For us, there are a
lot of pros and not many cons, " says
James W. Gore, chief credit officer at
$500 million-asset Lumbee Guaranty
Bank in Pembroke, N.C., which has a
loan-to-deposit ratio below 50%.
" Our first priority is the markets that
we serve and in the surrounding area, "
Gore says. " But to get the best return
for our bank and our stockholders, we
want to put that money to work, and
looking at the participation arena has
been very good for us. "
Participation lending has allowed
the bank to do business in bigger
markets. For example, Lumbee
Guaranty recently funded a $1 million
portion of a more than $5 million
loan for a new hotel development in
Raleigh. In this case, the lead bank
had already financed one hotel for the
borrower, and a second loan would
have exceeded its lending limit.
" Doing participations is a way for us
to have lending activity in the strongest
market in our state without any capital
investment, " says Gore. " Furthermore,
we are doing that through partners
that we have a lot of confidence in
[and] with community banks that are
very well established in that market
and have good underwriting. "
B
A path to serving more customers
Bringing in a lending partner allows
banks to continue serving customers
when loan amounts exceed their legal
lending limits. Denver-based Native
American Bank recently closed on a
$20 million loan to fund a medical
clinic for a tribe in northern Wisconsin
that was well above its lending limit.
The bank partnered with a local
tribally owned bank in Wisconsin
28 // ICBA Independent Banker // February 2024
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Independent Banker - February 2024

Table of Contents for the Digital Edition of Independent Banker - February 2024

Contents
Independent Banker - February 2024 - Cover1
Independent Banker - February 2024 - Cover2
Independent Banker - February 2024 - Contents
Independent Banker - February 2024 - 2
Independent Banker - February 2024 - 3
Independent Banker - February 2024 - 4
Independent Banker - February 2024 - 5
Independent Banker - February 2024 - 6
Independent Banker - February 2024 - 7
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