June 19, 2020 (Courtesy of the Jacksonville Business Journal) Despite pouring money into Paycheck Protection Program loans, banks and credit unions on the First Coast aren’t especially concerned about their ability to do consumer lending post-pandemic.
Lending through the program required an investment in technology and overtime for employees — and doesn’t provide a huge return for the financial institutions. But the loans aren’t counted against the banking institutions when it comes to determining the ratio of capital they must have on hand.
“The way they’re structured, the PPP plans, it shouldn’t be too restrictive for banks on a go-forward basis,” said Ameris CEO H. Palmer Proctor.
That doesn’t mean the loans were money makers, with interest capped at 1%.
What did help were the fees, said 121 Financial Credit Union CEO David Marovich. “We’re basically paid a fee for our services in granting the loan, and that’s really the area where we’re making up for the money. Because at 1%, it wouldn’t cover much of anything,” Marovich said.
Those fees range from 5% for loans up to $350,000, 3% for loan from $350,000 to $2 million and 1 percent up to the $10 million cap.
Marovich’s goal was to put $30 million into the program and so far the credit union has reached $27 million — that’s 455 loan applications representing almost 3,900 jobs.
Despite that, the credit union has experienced huge shifts in the number of consumer loans they’re receiving, including being far below their goal for consumer auto loans. While PPP doesn’t totally offset the drops the credit union is experiencing, the silver lining is the new relationships they’ve been able to foster through the loan program.
“I can’t tell you how many unsolicited emails I’ve received from our business members just complimenting our team,” Marovich added.
Still, lenders have had to adapt to other changes they’ve made during the pandemic. That includes payment deferments and extensions and other flexibilities the credit union has allowed, said First Credit Union CEO John Hirabayashi.
Hirabayashi said that while people continue to attempt to compare the pandemic to the recession in 2008, consumer balance sheets look fundamentally different and so they way they interact with their finances will also be different. They’ll be using the pandemic to, in some ways, inform future lending.
“I wonder if we’re going to see plans for that retail expansion in the commercial real estate sector, because we have to look at that more carefully than we have in the past,” he said.
Elizabeth Dobers, executive director of business banking at BBVA, said that post-pandemic they expect more reliance on the SBA Express program, as the SBA recently increased its lending limit.
“We think that this means more small businesses will be interested in the loan and banks, too, as the loan allows financial institutions to use their own lending standards to make a credit decision, and of course it has the SBA guarantee,” Dobers said.