Banks use PPP loans to find new customers, offer other services
(Illustration IBJ / Brad Turner)
IThe ndiana banks charge a modest fee of up to 5% for the $ 4 billion in paycheck protection program loans they have processed over the past year. But the coronavirus relief program has also given these banks something more valuable.
“Probably, in the longer term, the biggest benefit will be the goodwill gained by both current customers and the opportunity to gain new customers,” said Dan Maddox, CEO of New York-based Citizens State Bank. Castle. “There is a lot of loyalty built up going through this process.”
Citizens State is a small bank, with $ 700 million in assets and 12 locations in central and east-central Indiana, including offices in Carmel, Fishers and Pendleton.
Since PPP launched last April, Maddox said, his bank has processed about 1,100 PPP loans. About 25% to 30% of them went to borrowers who had no previous relationship with citizens.
“This has led to everything from depositary relationships to business loan relationships to mortgages,” Maddox said.
It is not uncommon for banks to attract new customers during bank mergers, economic downturns or other times of turmoil.
What’s different this time is that the effects of the pandemic, and by extension the demand for PPP loans, have been so rapid and widespread.
The P3 program was launched on April 3, 2020, with federal funding of $ 349 billion; he ran out of money in 13 days. The program was relaunched later that month with an additional $ 310 billion, then reopened in January with a new allocation of $ 284 billion.
To date, the program has approved 10.3 million loans totaling $ 770.7 billion nationally, including 85,065 loans in Indiana for a total of $ 4 billion. The application deadline ends on May 31.
“You can use that one [PPP] situation as an opportunity to penetrate clients that otherwise would have taken years, “said banking analyst Scott Siefers, New York-based senior research analyst at Minneapolis-based Piper Sandler Cos.” It was truly a unique moment. for industry. “
For the National Bank of Indianapolis, P3s proved the key to opening a door the bank had knocked on for decades without success.
“We had a business that we had been using for 20 years, and thanks to PPP, we finally got them,” said Doug Talley, chief banking officer for the bank. He then transferred all of his activities to the bank, he said.
Talley said his bank has processed just over 1,600 PPP loans to date with a total value of $ 400 million. Of these, about 15% to 20% went to new customers.
Talley said almost all of these new borrowers have since transferred their businesses to the National Bank of Indianapolis. “It has been a huge positive for us.”
Not all banks have seen such rapid success with P3s, but they are hopeful the business will come.
“I think it’s probably now that we’re going to see the fruits of the work we’ve put in with the PPP,” said Pat Gamble Moore, director of the Indiana Community Development Bank for Pittsburgh-based PNC Bank. .
Deep in the pandemic, borrowers have focused on day-to-day survival, Moore said. Now that the pandemic is abating, borrowers are in a better position to start thinking about future needs.
PNC has approximately 1,300 locations in 24 states, including more than 45 in the Indianapolis area.
Cincinnati-based First Financial Bank, whose 145 offices include 11 locations in the Indianapolis area, has already secured new business through PPP, said Jeff Magginnis, senior vice president of the Indianapolis-based bank.
The bank processed over 10,000 PPP loans, of which around 10% were for borrowers who were not clients of First Financial.
At this point, Magginnis said, it’s hard to say how many of these new PPP borrowers could become long-term clients. Some have already changed accounts or taken out loans, he said, and he believes others will follow.
“We have a good pipeline to become long-term bank customers,” Magginnis said.
Once the PPP program application period ends next month, he said, First Financial employees will contact all borrowers for follow-up conversations. “We hope that will affect personal loans, mortgages or the range of products offered by the bank.”
Siefers, the banking analyst, said community and regional banks in particular should see additional PPP activity, especially if they provided the personal assistance borrowers needed during the pandemic.
“To the extent that [banks] were there for a very acute time for their clients… which should be of value, ”said Siefers.
But, he added, it is too early to quantify how much investment banks will earn as a result of the PPP.
“I don’t think any of us really know that,” Siefers said. “This will be a situation that will evolve over a period of several years rather than several months.”
Banks also know that winning their business will take effort.
“It won’t happen by accident,” said Ray Webb, director of digital banking at Evansville-based Old National Bank.
The bank has 162 locations, including 17 in the Indianapolis area.
To date, Old National has processed approximately 1,600 PPP loans, of which approximately 13% have gone to new customers.
Cultivating these perspectives will take time, Webb said. “PPP kicked us out, but in the long run we have to win that relationship.” •