Nice gig

BANK of Bird-in-Hand sounds like a prudent name for a lender, perhaps suitably for the first bank to be founded in the aftermath of the financial crisis. Its name is no marketing ploy, however; it is merely taken from the southern Pennsylvania town that is home to this one-branch outfit. What really marks the bank out is the clientele it caters to, the local Amish community, a religious group sceptical of modern technology and, it turns out, a rather good credit. Since opening in 2013, Bank of Bird-in-Hand has never had to write off a loan.

Bill O’Brien, one of its founders, claims this is no coincidence. Though he is not Amish himself, Mr O’Brien has been lending to farmers in this traditionalist community since moving to the area 26 years ago. Many know his phone number and call him directly when they need a loan (phones are forbidden inside Amish homes, but communal phone shanties can be used to conduct business). Others prefer to use the bank’s drive-through window, large enough for a horse and carriage.

Losses are rare because loans extended to the Amish community are well collateralised. “Plain people” typically only turn to a bank to buy land, which is more stable in value than, say, the cars that non-Amish favour as security. They also tend to make large downpayments, nearly always of 20% or more. Smaller expenditures such as livestock are more likely to be paid for out of savings or by tapping family and friends.

In his previous stint as a loan officer at another bank, Mr O’Brien can recall only one occasion when he lost money betting on an Amishman, during the recession prompted by the meltdown of Bank of Bird-in-Hand’s distant Wall Street cousins. It helps, he says, that his clients believe that “when they don’t pay their bills on time, it’s like stealing”.

If a borrower is struggling, he can always find help within the community. In some cases, more experienced farmers have been known to convince a borrower that his farm is not viable and encourage him to sell the property and use the proceeds to repay the loan. Lenders like Mr O’Brien then avoid having to foreclose or book a loss. They may not even know the borrower ran into trouble.

Extending credit to customers who always repay sounds like an easy way to make money, but financing the Amish has its challenges. Beyond having to provide wooden shelters for their horses, many clients don’t have credit histories. Mr O’Brien often asks applicants about their family history instead. It also helps to be acquainted with Amish institutions and customs. Lenders, for example, must be willing to accept the communal property insurance favoured by the Amish.

Bank of Bird-in-Hand is likely to remain a niche lender. It currently holds assets worth $96m, a piddly amount even by the standards of small-town banks. But what it lacks in size, it makes up for in credit quality.