Two long-time Milwaukee-based firms, Layton State Bank and Badger Mutual Insurance Co., have formed a partnership to provide commercial loans, primarily for large area housing projects.
The arrangement enables Layton State Bank to loan more money to its customers, and it provides investment opportunities for Badger Mutual.
Layton State Bank and Badger Mutual each will provide half of the funding for the loans. Each loan will be reviewed by Layton State Bank, and final approval will be given by Badger Mutual.
Executives with the two firms say they are unaware of any other local partnerships of this nature between a bank and insurance company.
"I’d be surprised if I’d find too many of these," said Roy Bubeck, president and chief executive officer of Badger Mutual Insurance Co. "I didn’t check the market to see if anybody was doing this. I have a less tendency than most to do what others do. It seems to make sense to Badger."
Layton State Bank will receive a slightly higher return from the loans than Badger Mutual.
"That’s because they are going to service it," Bubeck said. "They get a small amount more than we do because they do the administrative work."
Layton State Bank has $100 million in assets, with offices in Milwaukee, Greendale and New Berlin. The bank has a lending limit, set by the federal government, of about $1.5 million per customer. By forming the partnership with Badger Mutual, the bank’s per-customer lending limit will increase to $2 million or $3 million, said Layton State Bank senior vice president Steve Grebe.
"This program is a win/win at multiple levels," Grebe said. "The community wins with the infusion of investment dollars. Badger Mutual wins with the diversification of their investment portfolio. Layton State Bank wins because we are able to be more competitive, and most importantly, our clients win because we can offer funds at better terms."
So far, the partnership has been used on loans for two projects. The first was the $2.5 million purchase of a 42-unit apartment building, financed with a $2 million loan from the partnership. The five-year loan was priced at a floating interest rate below prime.
The second project was a refinancing for real estate owned by a Milwaukee business with multiple locations. The total financing was $1.4 million. A longer term, fixed-rate option was chosen for that loan.
The loan program will target small businesses seeking financing for multi-family residential real estate projects. However, the program is flexible and can also include real estate loans for other proven businesses in southeastern Wisconsin, Grebe said.
Most of the financing will be between $500,000 and $2 million. Most of the loans will have a term of three to seven years and amortization of 15 to 25 years.
"We’re interested in supporting the community we live in," Bubeck said. "(The partnership) dovetails with putting some investment in the southeastern Wisconsin area."
"To grow you look at other opportunities," Grebe said. "Banks and insurance companies look at each other."
"In this day and age, a lot of banks want to be insurance companies and a lot of insurance companies want to be banks," Bubeck said.
Larger banks would not be interested in a similar partnership because they would not have the lending limit Layton State Bank does and would not want to share profits with a partner, Bubeck and Grebe said.
"This type of deal wouldn’t work at an M&I or a Bank One," Bubeck said. "I had been thinking about it for a couple of years, to find a small and medium-sized bank. It was about time as an insurance company we started operating some other investment vehicles."
Bubeck said he preferred entering into a partnership than having Badger Mutual offer its own loans.
"We don’t have the expertise to make a mortgage loan," he said. "We would have to hire different people. This way, we get to piggyback on Layton’s expertise. I personally believe you’re better off doing what you do best."
November 12, 2004, Small Business Times, Milwaukee, WI
