As our global economy becomes more sophisticated, successful companies look for ways to expand their delivery channels and their markets beyond the status quo. Take the check printer, the Deluxe Corporation. While Deluxe sells more than half of all checks printed in the country by printing and licensing check styles from Bugs Bunny to Pink Panther, the company realized it was losing market share to cheaper check printing offers in magazines, newspapers, and through direct mail. Their solution? Buy the competition. Through its ownership of Current Inc., Deluxe earns revenue from checks sold both through direct marketing channels and through banks.

As you know, banks also face fierce competition in the financial services industry. As Second National Bank expands in the Northeast/Central Ohio marketplace, management continues to seek innovative ways to grow and maintain market share. To achieve a market leadership position in the mortgage lending area, the Bank is covering all bases.

"It's really a three-pronged approach," explains Darryl E. Mast, Senior Vice President. "We have our direct loan origination in the branches and through our mortgage loan originators, and now we also have indirect lending through a new function called Correspondent Lending."

To support all three areas, the Bank has created a Secondary Marketing Department and made structural changes to the Real Estate Department. Read on for a profile of Correspondent Lending, Secondary Marketing, and the operations side of Real Estate.


Correspondent Lending Boosts Volume

Scott R. Them, Wholesale Account Executive, recently joined Second National to establish the Correspondent Lending Department for the Bank.

"This is a great way to increase mortgage volume without a lot of overhead," explains Mr. Them, who has been working in financial services for the past eight years, most recently in correspondent banking. "Second National achieves a certain market share through its retail presence, or, in other words, the loans we originate through our branches and mortgage loan originators. But there will always be business going elsewhere. Correspondent lending will help Second National Bank get a piece of that business as well."

In his work, Mr. Them will travel throughout the state of Ohio offering the real estate services of Second National Bank. Once a company has contracted with Second National, his work entails setting up an approval process and training personnel on the Bank's mortgage products.

"Customers choose a mortgage loan company because they offer the rates and loans of multiple institutions," explains Mr. Them.

If the company and the customer choose a Second National loan, our Bank underwrites the loan and, in essence, buys the loan from the mortgage loan company. Combined with the loans originated in the Second National branch system, loans secured by Mr. Them add critical mass to the volume of loans we are able to produce--and sell on the secondary market.

Mr. Them brings eight years of banking experience, in addition to a degree in accounting from Ashland University, to his position.

"Second National is a great company with excellent people, and it's people that make the organization what it is," says Mr. Them. " I always want to be part of a growing organization, and this Bank has incredible opportunities ahead."


Secondary Marketing: Protecting Our Interest Rate Risk

Beth Anderson, who holds two degrees, including a master's in finance from the University of Phoenix in Denver, was tapped to establish a full-fledged secondary marketing function at the Bank. The Cleveland native brings significant experience in interest rate risk management to Second National, including a knowledge of systems and software.

Just as mortgage companies sell their loans to other institutions for funds, Second National re-sells its loans to cover the value of those loans--and hopefully to make a profit. That means constantly monitoring the market to maximize the spread between the interest rate we lend at and the rate at which we can re-sell the loans.

Ms. Anderson and a staff of three package and deliver loans to investors, in addition to establishing daily prices for the Second National branch system.

"What Beth does for us is get us the best pricing possible to make us competitive," says Mr. Mast. "By multiplying the ways we obtain loans, through the branches, our originators, and now Correspondent Lending, she has a greater volume of each of the loan products we offer. That allows her to package loans together and sell them on the secondary market."

With a long list of diverse mortgage products, Mr. Mast adds that the Bank's real estate offerings now allow Second National to compete against just about any lender in our market area.

Ms. Anderson hopes to capitalize on that product menu by helping Second National become better known in the community for rates and servicing and to streamline the mortgage loan process through automation.

"I was drawn to Second National because of the Bank's commitment to mortgage lending and support of its growth," she says. "I really see a lot of opportunity at Second National."

Mortgage Loan Operations to Benefit from Economies of Scale

The size and scope of the task required a division of labor in the Real Estate Department: operations is now under Terry L. Myers, Senior Vice President, while sales, correspondent lending, and underwriting remain the responsibility of Senior Vice President Darryl E. Mast.

"By organizing the department in this way, we are able to focus the appropriate resources on sales to achieve Second National's aggressive sales goals for 1999," explains Mr. Myers. "And by combining mortgage loan operations with the rest of the Bank's operations, we can benefit from economies of scale and uniform procedures.

"The Operations Division has long handled the consumer and commercial loans of the Bank, from loading new loans to account maintenance to payoffs. With years of experience and established procedures, Second National's backroom has generated efficiencies that can now be applied to mortgage loan operations.

"What we want to do is make all Second National operations as efficient as possible by putting similar functions under the same umbrella," says Mr. Myers. "And we want to do what it takes to meet our goal of closing each mortgage loan within 30 days of the application date."

To that end, Jill Davis, Operations Manager and Vice President, and Shelia Ames, Operations Supervisor and Assistant Vice President, have assumed supervisory roles. A Resource Development Team was recently created and put at the department's disposal. This team provides expertise and resources that can be immediately applied to resolve critical issues within the department. That includes analyzing processes, reorganizing functions, problem solving, and brainstorming possible ways to speed up the loan approval process.

In addition, an Implementation Team, led by Operations Manager Donna Ritenour, works with the Resource Development Team to implement initiatives and follow up on improvements made to various processes within the department.

"We quickly identified difficulties in processes and job functions and with some immediate changes, we have already made progress," says Mr. Myers. "I think everyone is encouraged by what we have accomplished, and it's only going to get better."

Department meetings with staff have been critical to determining and eliminating bottlenecks and inefficiencies in the loan process. For example, customer phone calls that interrupted loan documentation work have been re-routed to the Call Center, which was designed to handle such calls. Supervisors coordinate work flow and two "mobile" operations specialists help manage the workflow and ensure documents move quicker through the pipeline. With uniform procedures, employees can now fill in for one another. As a result, the high volume of problem resolution sheets that typically filtered to the mortgage loan area has been cut in half. And process times have already begun to improve.

"We've got a group of processor/closers in the mortgage loan area who know the real estate loan business inside and out and who are exacting in their work," says Mr. Myers. The servicing department loads the loans on the ALLTEL Horizon system, maintains the accounts while they are active, and processes loan payoffs at the end of the loan term.

"What we want to give everyone now is an efficient process to get their work done in a more timely manner and with as little distraction as possible."

By mid-May, the Operations Division plans to have the 90-day restructuring of mortgage loan operations complete, just in time for the spring home-selling season. Finishing the job and meeting the 30-day loan turnaround goal on a consistent basis, however, will take more work--and a little trust in the revised processes.

"The Operations Division has established processes and successfully implemented and maintained them in all operational areas of the Bank," says Mr. Myers. "With the active participation of our mortgage loan staff, we'll be able to capitalize on all of their efforts and make their work processes as smooth as possible."