Independent Banker - July 2018 - 19

Fla., leads the bank's marketing efforts,
serving as a liaison to the brokers who
are also based in south Florida, though
Velez courts prospective borrowers at
boat shows and other marine industry
events as well. Underwriting, loan
origination and other back-office operations
for the niche are conducted
at Radius' corporate headquarters
in Boston.
This extremely high-end product
is actually one of the safest consumer
loans banks can make, Velez says. For
all boat loans, delinquency rates average
0.5 percent, but delinquency rates
for larger yacht loans are even lower,
averaging .002 percent. The bank's
interest rates on fixed-rate yacht loans
are comparable to those for mortgages:
currently about 4.7 percent,
with terms up to 20 years.
" These loans are so profitable
because of the quality of the loan portfolio.
It's been squeaky clean since its
inception, " Velez says. " They are also
marketable instruments. We sell them
off in the secondary market to generate
fee income, which has worked very
well for us. "
However, yacht loans, like any
specialized lending niche, must still
be priced appropriately for risk,
Velez says.
" Sometimes a lender picks up all
the tricks and goes to another bank
that does copycat lending but doesn't
price the same way based on the risk,
and their loans eventually blow up, " he
says. " So the first bank needs to make
sure they continue to reasonably price
the loans according to risk. "
Do your homework
Bankers considering this niche should
also study up to ensure they're financing
the right products, as some boats
are much more marketable than others,
Velez says.
" There's a lot of low-end boats that
are more like a Chevrolet, but they are
not going to hold their values like large
semi-custom or custom-built boats
that are more like a Rolls-Royce, "
he says.
Loan programs should be fairly
conservative with respect to down
payments and terms, Velez adds. In
the past, many banks offered stated
income loans that did not require written
verifications of income, with just
a 10 percent or even a zero percent
down payment. When the resulting
loan losses became too great, those
banks had to exit the business.
" If you get into it and do it right, it
" We often hear
customers say,
'When will you open
a bank here?' as a
result of the service
they've received
obtaining one of
these niche loans. "
-John Bowers, South State Bank
can be a great business, " Velez says.
" But if you get too aggressive, it can
sting you. "
Paul Schaus, president and CEO
of CCG Catalyst Consulting Group
in Phoenix, Ariz., says niche lending
can help a community bank differentiate
itself. He says it should first
identify an optimal client base with
a segmentation strategy, and determine
which products and services it
would need. This will allow it to craft
a lending program that will position
the bank as the foremost lender for
that niche, both in products and in
Independent Banker - July 2018

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