State Bank launched its mortgage lending operations in earnest in 2007. Thanks to its service-centric approach, the bank experienced tremendous origination growth, with annual volumes quickly gaining ground on the bank’s total assets.
“Before long, we were doing $300-400 million in annual volume, and the entire bank was less than a billion dollars in total asset size,” said Matthew Booms, senior vice president at State Bank. “By committing our pipeline on a mandatory basis, there was potential for the tail to wag the dog, and our management team expressed concerns around the level of risk we were facing.”
While the desire to grow its mortgage division remained, State Bank determined it was not in a position to assume more risk and decided to begin hedging its mortgage pipeline. After briefly considering adding additional internal resources, State Bank sought the help of a hedge advisory firm that could support its internal secondary department and provide market insights and advice to help manage its risk.
Having had several detailed preliminary conversations with Vice Capital Markets for over a year before making the switch to mandatory delivery, State Bank knew the firm’s approach to personalized service matched its own, making Vice the right choice to help manage its new secondary execution strategy. Leveraging Vice Capital’s Hybrid Service model, State Bank opted to retain responsibility for all of its cash sales while allowing Vice Capital to manage its bulk sales, allowing State Bank to enhance its execution while maintaining control over the entire process.
“We determined upfront that we wanted to take a hybrid approach. At the time, our secondary department inside the bank consisted of one person locking and selling everything. When you add in trading and the reporting functions that go along with hedging, it’s just not possible,” Booms explained. “We briefly explored maybe bringing somebody in-house to do that, but after having conversations with multiple hedge advisory firms, and especially Vice, we thought that this would be the better way to do it. We get additional capacity and infinite scalability, along with the expertise of a firm that sees how dozens of different lenders operate.”
From the start, State Bank appreciated the time and level of attention Vice Capital devoted to ensuring everyone was on the same page and speaking the same language.
“One of the first things I noticed about working with Vice is the education component. There’s always more to learn, and the biggest pitfall is making the assumption that you know exactly what’s going on,” Booms noted. “The senior management team at Vice Capital has spent hours on the phone with me, making sure that I understand the reporting components and the overall process. Having that baseline knowledge means I’m speaking the same language as them so when we talk about recommendations and what direction to take, there is no disconnect.”
For State Bank, this investment from the beginning not only cemented the relationship with Vice Capital, but also established a level of trust that enables State Bank to be open and honest with the Vice team and receive the same in return.
“Something State Bank values is partnership. We are always looking for like-minded vendors who buy into our story and vice versa,” Booms said. “I haven’t done any lending in a long time, but I have clients from seven years ago that still call me. To them, I’m their banker, and if they’ve got questions, they want to talk to me. That’s the kind of customer service that State Bank provides, and Vice is the same way. I can pick up the phone and ask the Vice team an outside-the-box question, and they will take me seriously, provide a good answer and guidance and try to steer us in the right direction.”
In addition to forging a relationship that mirrors State Bank’s service-centric approach, Vice Capital has also been instrumental in helping State Bank build out its partner network to maximize the profitability of its secondary activities.
“Another key win has been helping us identify partners for our broker/dealer and correspondent relationships. Vice has also been very open about sharing feedback it has received from other clients regarding the success of their partnerships and recommendations on how to increase our execution,” Booms said. “Obviously, maximizing our profitability means we can be more aggressive on pricing, which makes us more relevant in our market, but Vice also recognizes that our success drives its success. That’s not a novel concept, but I think Vice is more invested in that goal than some of the larger firms that might not value a community bank of our size.”
When the COVID-19 pandemic sent the markets into a tailspin in February 2020, State Bank was able to rely on the groundwork Vice laid with the bank’s broker/dealer relationships to navigate the turbulent waters and minimize margin calls.
“The conversations we had with Vice were really enlightening and helped us make a more informed decision to adjust our pull-through model based on what we were seeing and anticipating in the market, which saved our bank a significant amount of money,” Booms noted. “It’s hard to put a value on a relationship, but that scenario sums up our relationship with Vice. They are our partner, and I would likely not have been able to have that dialogue with a different hedge advisory firm.”
“Because Matt had such good controls in place and an excellent knowledge of his pipeline, we were able to quickly react to the rapidly changing market and work together to modify the hedge and adapt to the extreme market conditions. This ongoing communication between Vice and State Bank has enhanced the execution and created a successful partnership,” said Troy Baars, president of Vice Capital Markets.
Ultimately, State Bank views the relationship with Vice Capital as an extension of its larger organizational mission of serving its local community.
“When we started our mortgage department, the bank was approximately 600 million in assets. Now we’re about $1.2 billion so we’ve doubled in size since then, and we have aspirations of reaching the $2 billion mark,” Booms explained. “At the same time, we are a conservative community bank that’s very customer service-oriented, and we take our duty to serve seriously. Vice Capital helps us fulfill that duty by ensuring we remain profitable and relevant without taking unnecessary risks, which enables us to better serve our customers.”
Founded in 1902, The State Bank & Trust Company (State Bank) is a community financial institution headquartered in northwest Ohio. State Bank provides a full range of financial services for consumers and small businesses, including wealth management, private client services, mortgage banking and commercial and agricultural lending. In addition to its 21 banking centers (20 in Ohio and one in Fort Wayne, Ind.), State Bank also operates five loan production offices located throughout Ohio, Indiana and Michigan. For more information, visit https://www.yourstatebank.com.