One of Maine’s oldest community banks is poised to get into small-business lending in a big way.

Northeast Bank, based in Lewiston, has hired eight veteran bankers specializing in U.S. Small Business Administration loans and a former head of the SBA to launch a new division that seeks to issue millions of dollars in small-business loans across the country.

Additional Images

The launching of Northeast Bank’s small-business loan division is being led by, from left, executives Jeanne Hulit, Jonathan Smith and Richard Wayne. The Lewiston-based bank has a branch at 77 Middle St. in Portland, above. Gabe Souza/Staff Photographer

Building a large portfolio of SBA loans also will help Northeast execute its unusual business strategy of buying up commercial mortgage loans on the secondary market, a sideline that the bank’s top executive said has become a major profit generator.

The SBA lending division is led by Senior Vice President Jonathan Smith, former vice president and regional sales manager for TD Bank’s national SBA division. After Northeast hired Smith in September, six other experienced lenders formerly with TD Bank joined him.

“A lot of them worked with Jonathan at TD,” said Jeanne Hulit, president of Northeast’s community banking division. “We had the opportunity to hire some great talent all at once.”

Smith reports to Hulit, former acting administrator of the SBA, whom Northeast hired in February.

In all, the bank’s SBA lending division has seven regional “business development officers” under Smith who will seek out prospective borrowers across the U.S. They are already established in markets such as Chicago, Boston, New York and Houston.

Northeast CEO Richard “Rick” Wayne said the goal is to greatly expand Northeast’s loan portfolio while continuing to operate as a full-service community bank. Northeast has leased about 10,000 square feet of space at 27 Pearl St. in Portland, where it plans to open a new retail branch and offices in late spring, he said.

Wayne’s professional background is unusual for the chief executive of a community bank. He is a lawyer and CPA who co-founded a Boston bank called Atlantic Bank & Trust in 1988. When a recession threatened to put the bank out of business in the early 1990s, its business model was altered to take advantage of the economic slump. The bank, renamed Capital Crossing, began buying up and servicing commercial mortgages issued by other, failed banks.

The refocused company became hugely successful and was sold to now-defunct financial services giant Lehman Bros. in 2007 for $210 million.

Wayne and a small group of investors began looking in 2009 for another bank to purchase in order to duplicate the Capital Crossing business model, he said.

A year later, they purchased a controlling interest in Northeast, founded in 1870, for about $30 million and set about shifting the community bank’s ancillary revenue streams from personal investing and insurance to loan acquisition, and now SBA lending.

SBA loans are designed to improve access to capital for businesses that otherwise might not be able to obtain credit. They differ from conventional business loans in that the SBA guarantees the lender repayment of a portion of the loan – as much as 90 percent – if the borrower defaults. The guaranteed portion also can be bought and sold on the secondary market like other types of security.

In other respects, SBA loans are the same as conventional loans, Smith said. Only slightly more paperwork is required, and the bank still has control over the evaluation of prospective borrowers.

“We can make all the decisions in-house,” he said.

Wayne said it is too early to say how much SBA lending ultimately will add to Northeast’s loan portfolio. At the end of September, the bank had $782 million in total assets and $542 million in loans. The bank would like to increase the value of its loan portfolio to $900 million by buying up existing loans and issuing new ones, Wayne said.

Federal regulations limit the portion of a bank’s loan portfolio that can be made up of purchased loans to 40 percent, he said. Therefore, in order to buy $4 million worth of loans, the bank must originate $6 million worth. The new SBA lending division will help boost the value of originated loans.

As of Sept. 30, about 37 percent of the bank’s loan portfolio was purchased loans, said Northeast Chief Financial Officer and Chief Operating Officer Claire Bean.

Wayne said the bank is interested in acquiring loans because there is less competition, his team has experience choosing and pricing them correctly, and such loans have proven highly profitable in the past.

“This is a business that is too small for the big banks … and it’s too complicated for the little banks,” he said. “This is not an easy business to execute well on.”

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