Partnering for speed to service

Colony Bank’s leadership team recognized the need to partner in order to efficiently scale personal loans, given their limited consumer lending base and geographic footprint at the time. Fountain explained, “It’s a matter of efficiency. We wanted to take advantage of Upstart’s scale and speed to service so we could focus on our expertise in client relations.”
He also highlighted that since community banks have not been very active in personal lending in recent years, Upstart’s Referral Network presented a cost-effective way to re-enter the market. He noted that consumers increasingly embraced digital solutions, making it the right time for Colony Bank to expand its services through a partnership.  

Lenny Bateman, Chief Credit Officer, also stated that it was crucial to treat a fintech partnership like any other aspect of the bank, especially throughout due diligence. “It’s important to treat fintech partnerships as though we’re dealing with the rest of the bank — that’s what our regulators are looking for as well.”

The decision to partner with Colony Bank involved collaboration among various teams within the bank, including the retail and consumer lending team, compliance, risk and marketing. The bank also proactively engaged with regulators to ensure transparency and compliance throughout the partnership. 

Doubling the personal loan portfolio

Before partnering with Upstart, personal loans made up a minimal portion of Colony Bank’s portfolio. Since implementing the Upstart Referral Network, this figure has more than doubled, and Fountain and Bateman attribute this successful growth to Upstart.

Additionally, Fountain and Bateman shared that the partnership has allowed Colony Bank to achieve more transparency, making it easier to put loans on the bank’s balance sheet and cultivate additional relationships on the deposit side. Since launching with Upstart in December 2022, Colony Bank has attracted over 500 new customers. 

Maximizing returns and managing risk

Bateman noted the importance of the Upstart Performance Console, which tracks the program’s key performance indicators (KPIs) by monitoring controls like loan volume, returns and losses. This analytics dashboard has proven valuable, especially in a rising rate environment, enabling leadership to adapt its return profile to match its funding needs. 

Since launching with Upstart in December 2022, the Colony Bank team has increased their returns by 280 bps to keep pace with changing economic conditions. 

Bateman explained that one of the challenges for community banks is the limited internal data available to build a credit box. Upstart’s data-driven approach has allowed the bank to access insights and new clientele who would have been beyond its traditional reach prior to partnering. He also added that the Upstart Macro Index (UMI) has served as an additional layer of protection to assess how macroeconomic factors impact Colony Bank’s personal loan portfolio performance.

Fortifying the balance sheet during an economic downturn

Fountain emphasized that the current macroeconomic environment is favorable for banks to implement new consumer programs to ramp up when market conditions improve. He stated that when supply is outrunning demand, banks have the opportunity to prepare for when demand returns. “Now is a good time to get your consumer portfolio ready for when the market is prime for growth and profitability. We’re using this as an opportunity to put strong credits on the books.” 

The bank is looking to expand into northern Florida with the Upstart Referral Network and will launch the Referral Network for auto refinance loans in 2024. 

In conclusion, Colony Bank’s strategic partnership with Upstart has enabled the institution to diversify its balance sheet, re-enter the personal lending space and adapt to evolving consumer preferences. The collaboration has proven to be a fruitful venture, providing the bank with new opportunities for growth and risk management in the changing financial landscape.