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How North Bay commercial banking is changing with nontraditional lending, 24-7 digital business services, AI

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To move a business from idea to reality, or a business from revenue of $100,000 a year to $1 million, the world relies on commercial bankers.

The Business Journal asked the area’s top commercial bankers about key issues facing the industry. In their responses, they discuss topics such as the growth of nontraditional lending, how customer preferences for 24-7 banking are shifting the business landscape, SBA loans, small business digital lending and artificial intelligence.

Jeff Clark

Senior Lender, Live Oak Bank

100 B Street Suite 100 Santa Rosa 95401 707-921-1102

www.liveoakbank.com

Year you assumed this position: 2014

What trends are you seeing in clients opting for loans from non-traditional lenders?

Early growth phase borrowers seek capital wherever they can find it. Quite often that is with “non-traditional” or alternative lenders. These lenders offer a valuable service by providing debt when traditional lenders will not. This is more expensive but cheaper than equity. Refinancing high interest debt to a lower rate and better terms is a large part of what we do.

How important are real-time or same day transfers for companies and what are banks doing to improve them?

The ability to move money in a secure, efficient and expedient fashion is important. This trend will continue as we make advances in technology. Everyone benefits when you have a dependable way to send and receive money.

What are commercial banking customers demanding in terms of user experience?

A bank that understands their business. Many borrowers, especially in the craft beverage industry and other rapid growth industries have had negative experiences because their bank didn’t understand the industry. A bank without industry experience will often panic during a downturn putting pressure on borrowers to find another lender. Craft beverage is an excellent example. It looks like a fun space to be in, but it is incredibly competitive. When it enters a down cycle many banks exit the industry. They don’t understand the industry’s history, cyclicality or what forces are driving change. Many times regulators will put pressure on them to exit the industry because they don’t employ lenders with industry experience.

What automated processes will continue to evolve in 2020?

Live Oak Bank through its subsidiary nCino has been a pioneer in providing cloud-based systems to the banking industry. The need for seamless secure banking systems to transact business will only increase. Banking has traditionally been paper-intensive, employing numerous different server-based software systems, most of which are closed architecture, in design. The move to open architecture cloud-based systems allows for “plug and play” additions to services offered.

What revenue streams do you envision expanding or coming online in 2020?

We continue to develop new products for the marketplace. If our clients have a need we want to address it. For example, we created an Asset Based Working Capital Line of Credit secured by barrels of bourbon, whiskey and brandy. It allows producers to leverage their inventory to fund operations and increase inventory production. We also offer C-PACE (Commercial Property Assessed Clean Energy) financing. It is an innovative way for commercial property owners to finance energy efficiency upgrades, renewable energy projects, seismic retrofits and water control measures. There is no upfront cash required and it can be treated as off balance sheet financing.

Genie Del Secco

Executive Vice President and Chief Operating Officer, Summit State Bank

500 Bicentennial Way, Santa Rosa 95403 707-568-6000

www.summitstatebank.com

Year you assumed this position: 2018

What trends are you seeing in clients opting for loans from non-traditional lenders?

The trend of working with non-traditional lenders is more consumer-focused products like home loans, home equity and vehicle loans. Since our focus is on commercial and nonprofit customers, we are somewhat insulated from this trend.

How important are real-time or same day transfers for companies and what are banks doing to improve them?

Your ability to deliver as close to real time transactions has become a minimum expectation, especially with larger businesses where the types of transactions they utilize to run their business are more, complex such as ACH transactions, domestic and international wires, ezDeposit – making deposits from your office 24-hours a day. We continually stay abreast of the latest technology to ensure we remain competitive and more importantly, we listen to what our customers need. If not, you risk becoming obsolete.

What are commercial banking customers demanding in terms of user experience?

At the end of the day, every customer wants to do business with an organization that delivers quality customer service and a wide variety of products and services to make running their business as smooth as possible. Depending on the size of the customer the needs and services vary, the user experience and expectations are similar.

What automated processes will continue to evolve in 2020?

Online banking and real-time payments continue to evolve as do products like Positive Pay, which assist with detecting fraud. Artificial Intelligence and robotic process automation has become much more popular and can be an alternative to automating transactional tasks. We continue to be educated on the latest and greatest technologies and are strategic in their deployment. By automating processes, it is easier for our employees to get their jobs done and for customers to do business with us.

What revenue streams do you envision expanding or coming online in 2020?

Our business model is based on relationships and not transactional business; therefore, each relationship structure is based upon the needs of the business and services they use. We also consider the aggregate account relationships they have with us and leverage their balances to offset service fees.

Julianna Graham

Senior Vice President and Area Manager, Tri Counties Bank

819 Fourth Street, Santa Rosa 95404

707-522-5480 www.tcbk.com

Year you assumed your position: 2018

What trends are you seeing in clients opting for loans from non-traditional lenders?

There has been significant growth in small business digital lending over the past four years. Pay Pal reached a $1B in lending in their first 23 months and now serves over 225,000 customers according to The Financial Brand. So there is no lack of demand from the small business sector for digital solutions.

Digital lenders definitely have an advantage in that they are not federally regulated like traditional banks and can be more agile in their product development and delivery. We have not seen digital lenders tackle the middle market space, at least not yet. However, traditional banks should strongly consider improving and streamlining their delivery by building more digital functionality into their loan approval and documentation processes. Credit analysis and loan structure for middle market companies still require a customized approach-at least for the near future!

How important are real-time or same day transfers for companies and what are banks doing to improve them?

In addition to a high level of personal responsiveness and a consultative approach to client solutions, customers are looking for and expecting to have access to their bank 24 x 7, ability to transact banking via their phone, easy to use tools, global payment capabilities with customers and vendors, IT security and robust management reporting.

What automated processes will continue to evolve in 2020?

“Evolve or dissolve, it is your decision” is a quote I recently heard. Traditional banking continues to evolve their approach to automation as system technology improves but is it fast enough for customers? In a recent Accenture survey, only 3% of banks had a cloud strategy or were thinking about it. It is critical to have a vision, leadership and courage to explore options that accelerate the adoption of new ideas and improvements. However, bankers are not typically known for taking risks especially in the heightened age of cyber security breaches.

What revenue streams do you envision expanding or coming online in 2020?

With a flat yield curve and low rate environment, banks are challenged to increase revenue streams to meet stakeholders expectations and continue to invest in technology that can improve the customer experience. The good news is we have many tools to help our customers be successful. Online marketing can be a revenue driver if directed to a targeted audience with value oriented solutions.

Brian Kilkenny

Credit Administrator, Redwood Credit Union

3033 Cleveland Ave., Santa Rosa 95403 707-545-4000

www.redwood.org

Year you assumed your position: 2019

What trends are you seeing in clients opting for loans from non-traditional lenders?

People and businesses have more options than ever regarding their banking and financing needs: from peer-to-peer programs, automated digital platforms, and private money lenders to credit unions and conventional banks.

We focus on listening to our members and keeping a finger on the pulse of the market so we can deliver the products and services businesses want and need in a way that is convenient to them. Most of the businesses we see opting for non-traditional lenders are in the small or microloan category. These are often start-up or newer businesses that might not yet have the historical financials to qualify for conventional financing. There are typically very limited options in the conventional financing market willing to provide some of these smaller loans, due to the relative expense associated with generating them.

At RCU, we do all that we can to help local businesses that need smaller loans and might not have opportunities elsewhere. Locally, we are frequently the leader in number of SBA loans given—which means we are helping more businesses get the financing they need to grow and thrive.

How important are real-time or same day transfers for companies and what are banks doing to improve them?

There is a high level of focus around this right now, from businesses themselves as well as financial institutions. Businesses obviously want access to their funds as quickly as possible to put back into their operations and invest in future growth.

We’re continuously working to help move funds quickly, as a benefit to our members, and for faster verification of funds. We offer a wide variety of online and mobile banking features, including 24-hour funding opportunities for merchant card transactions, and same-day peer-to-peer transactions.

What are commercial banking customers demanding in terms of user experience?

Our business members’ needs are as varied as their businesses, but we know the majority are seeking convenience, security, honesty, and transparency. Businesses want to have access to the financial institution and its products, when and where they need them. We respect their time and strive to provide them relevant information and easy access to their funds and to our services, anytime, anywhere, while maintaining simplicity and security.

Honesty and transparency are paramount; people want and deserve to know the true cost of all of their products and fees in a way they understand, and we focus on providing this. We also find our members want to have a physical connection to their financial institution and the people within. We listen to our members and provide multiple access points for their convenience, from personal visits to their place of business, to providing virtual access to our Business Services team, or serving them at one of our 19 branch locations.

What automated processes will continue to evolve in 2020?

Increasingly, consumers are doing business online and on mobile devices, so we continue to focus on improving access and services through these channels. But we’re seeing that members also still want the ability to go to a brick and mortar, or call a local call center and speak with a real person, so we continue to offer that as well. We enjoy providing personalized service and are here to help our members with their unique needs.

What revenue streams do you envision expanding or coming online in 2020?

As a cooperative, our focus is on helping our members and communities, and our revenue is returned to our members in the form of better rates, fewer fees, and providing services that address all their financial needs, from traditional banking to insurance and financial planning. We’ll continue to focus on enhancing our online and mobile channels for our members’ convenience. We recently opened a new branch in American Canyon and will be opening another in Lower Lake in a few weeks. We continue to see strong growth and will be expanding operations over the next couple of years with a second back office facility opening in Napa to meet growing demand, as well as enhancing our ability to maintain and provide services in the event of a disaster, and it allowing to attract exceptional employees from a larger geographic area.

Alison Martin

Vice President, US Bank

880 Jefferson St., Napa 95559 707-226-9391

www.usbank.com

Year you assumed your position: 2014.

What trends are you seeing in clients opting for loans from non-traditional lenders?

While non-traditional lenders remain strong competitors for commercial banks, we are seeing more companies looking for a bank that can offer a full suite of services, including credit and treasury management, in order to increase efficiency and reduce the overall cost of doing business.

How important are real-time or same day transfers for companies and what are banks doing to improve them?

Real-time and same-day payment processing has become very important as it’s not only about speed, it is about the remittance data that is provided in the process too. U.S. Bank was one of the first banks to be live on the Clearing House’s official RTP ® network, and we continue to innovate in the space. Our new Request for Pay feature, enabled by RTP, allows billers to digitally request payment from consumers – and consumers can respond to the message with a payment in real time that carries the data billers need to apply and post the payment.

What are commercial banking customers demanding in terms of user experience?

Clients have shared they expect immediacy, automation and intuitive processes across implementation, connectivity, payment initiation, and reporting. They are also seeking a relationship management team that delivers credit products, and other ancillary services, efficiently and priced reasonably. Middle market corporations look for a banking team that will advocate internally for them and provides professional service to them, day-in and day-out. In short, corporate clients want a top-notch execution and service from their financial service provider.

What automated processes will continue to evolve in 2020?

While many clients have solved for core payments automation through Treasury Management Systems, anywhere from 40-50% still struggle with manual processes – mostly due to IT resources. To address this, banks are launching a series of Application Programming Interfaces (APIs) that allow customers to access a variety of bank services directly from their systems that will allow customers to make payments and get foreign exchange rates, balance reporting, and payment status data simply from making an API call to the bank. Banks are also building direct connections to client TM and Enterprise Resource Planning (ERP) systems (i.e. Oracle, SAP, NetSuite, QuickBooks) to eliminate the IT burden.

What revenue streams do you envision expanding or coming online in 2020?

As more customers automate their treasury operations, the next frontier is optimization, leveraging new technologies such as artificial intelligence/machine learning, Robotic Process Automation and Blockchain. Using payment optimization and intelligent routing, customers can see a consolidated, historical view of their payment trends. These analytics can help uncover opportunities to use more efficient payment types, take advantage of available early pay discounts and unlock working capital.

Evelynn Porter

Vice President and Commercial Loan Officer, Poppy Bank

438 First Street Santa Rosa 95401 707-636-9000

www.poppy.bank

Year you assumed this position: 2014

What trends are you seeing in clients opting for loans from non-traditional lenders?

Number one -- is a quick response time. Outside of that, I find clients value strong communication and a solution-based mindset. In our fast-paced, technology-driven world, respecting the client’s time and needs are essential. I find many clients (especially repeat commercial borrowers) like an outside of the box approach and having the opportunity to brainstorm with the lender. People appreciate the fact that we can cross collateralize properties laying out options with pros and cons, and the rate structure of those options so they can choose the best fit for them.

Borrowing money is often an emotional experience for borrowers and while we have repeat and sophisticated borrowers, it is important to recognize that for some people, purchasing a commercial building may be one of the most significant financial events of their life. Borrowers may be nervous and may not truly understand the differences between home loans and commercial loans and why these products are so different. I’ve found that talking through the process and providing real education is valued.

How important are real-time or same day transfers for companies and what are banks doing to improve them?

Electronic transfers and the ease of such is a growing demand from customers. The most important factor for the Bank is safety. Anytime money moves out of the bank electronically, security protocols must be followed from both the customer and the bank. If anything, I see these transfers becoming more of a risk because as demand for technology and electronic banking evolve so do the cyber criminals who have extremely sophisticated methods. Our main concern is safety for all of our clients and our institution.

What are commercial banking customers demanding in terms of user experience?

I find clients simply want the ease to conduct their business in a streamlined manner. They want a bank that understands their business, goals and objectives. And, they want personal interaction with knowledgeable and experienced lenders who can offer real time advice.

What automated processes will continue to evolve in 2020?

Mobile Banking and Remote Deposit Capture are by far the areas that we have seen the biggest evolution in automated support, and I believe this will continue. Business owners are traveling more than ever before and want the ease and speed to conduct business in a safe and secure manner. Clients no longer need a bank down the street or even in their own town.

What revenue streams do you envision expanding or coming online in 2020?

The goal of the ‘relationship’ banking model is for clients to enjoy a full suite of services. When focusing on revenue streams, Banks still have two primary functions, money in and money out. The safety, ease, and flexibility in which Poppy Bank executes these functions is what sets us apart from the others.

Chris Thomson

Senior vice president for the Wine Industry Specialty Group, Comerica Bank

1000 Main Street, Napa

www.comerica.com

Year you assumed your position: 2004

What trends are you seeing in clients opting for loans from non-traditional lenders?

Our clients are looking for traditional lenders that can provide a full suite of products. This includes loans and treasury products to optimize cash flow. In addition, they want a financial institution equipped with international, leasing and wealth management capabilities.

How important are real-time or same day transfers for companies and what are banks doing to improve them?

We have state of the art treasury products to meet our customers needs.

What are commercial banking customers demanding in terms of user experience?

Customers want knowledgeable bankers that provide excellent customer service and banking products to match.

What automated processes will continue to evolve in 2020?

Continuing streamlining payments, both incoming and outgoing through integrated banking products.

What revenue streams do you envision expanding or coming online in 2020?

We have invested in the North Bay plan for continued growth.

Paul Yeomans

Senior Vice President and Wholesale Banking Sales Manager, Exchange Bank

545 Fourth Street, Santa Rosa 95401 707-524-3000

www.exchangebank.com

Year you assumed your position: 2019

What trends are you seeing in clients opting for loans from non-traditional lenders?

The only alternative lenders our larger business borrowers are using are leasing companies for large equipment purchases (greater than $100k). Not many larger borrowers use fintech lenders due to very high interest costs. .

How important are real-time or same day transfers for companies and what are banks doing to improve them?

Real-time transactions are very important to our customers. We live in a world where users expect instant results and the industry as a whole is pushing towards meeting that expectation. Both VISA and MasterCard have new expedited payment requirements that require financial institutions to shorten the length of time it takes to complete electronic transactions.

What are commercial banking customers demanding in terms of user experience?

Commercial customers expect security, convenience and ease of use to simplify their busy lives. Exchange Bank products are focused on these attributes. Our recent Business Digital Banking upgrade is aligned with these trends and offers a robust and secure platform that includes full-featured mobile apps for iOS and Android.

What automated processes will continue to evolve in 2020?

One of Exchange Bank’s goals is to make it easier for our customers to transact business and move money. Processes that make it easier for us to provide information in a real-time environment will continue to be evolved. Point-in-time cash management reporting is one recent example of the new capabilities that Exchange Bank is now offering to customers. Automated fraud monitoring tools are another area of interest for our customers as this is an ever-changing threat in the digital world.

What revenue streams do you envision expanding or coming online in 2020?

We are looking to open a loan production office in the East Bay and expanding our lending to the South Bay to complement our new Trust group there. We also have plans to enhance our digital offerings by offering Positive Pay for ACH (electronic transfers) to our Positive Pay for Checks for corporate banking customers. Payee Match capability is also on the horizon for late 2020.

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