Nashua’s Millyard Bank was less than six months old when the coronavirus pandemic struck, but it appears to be coming through the crisis stronger than it started, with many new deposit relationships.
It’s a difficult time to be a bank. Interest rates are at zero, squeezing margins. And most financial institutions are bracing for huge loan losses as a result of the coronavirus pandemic, which has essentially shut down the economy.
But if you are a startup de novo bank, the unprecedented times have presented a huge opportunity to add market share and make your presence known, largely because of the Paycheck Protection Program, or PPP.
Part of the landmark $2 trillion federal economic rescue package, the PPP allows lenders to issue loans of up to $10 million to struggling small businesses that are fully guaranteed by the U.S. Small Business Administration.
G. Frank Teas, president and CEO of the newMillyardBank based in Nashua, said the bank has originated roughly 140 PPP loans as of May 1, many of which are going to customers the bank has never worked with before.
“We didn’t have a lot of clients at the time because we were brand new, so it was somewhat of a business development opportunity and a relationship opportunity to meet new folks,” he said, adding that loans from the bank have helped save 1,700 jobs in the greater Nashua region. “Many PPP customers have now said they’re moving their entire [banking] relationships to us.”
Bank Just Six Months Old
Millyard Bank launched in December of 2019 after raising $21 million in capital from 211 shareholders.
It was the first bank headquartered in Nashua since The Nashua Bank was acquired in 2012. Millyard’s goal was to fill the gap that many small business owners saw with few lenders operating in the $50,000 to $3 million loan range.
But as any new bank will tell you, breaking into new markets is no easy task because of established lenders’ brand loyalty.
When the coronavirus pandemic struck and Congress passed the PPP, small businesses flooded the banks looking for much–needed capital in order to survive social distancing measures that significantly limit in-person interaction and hampers many businesses.
While PPP loans come with very little interest income because portions of the loan used on expenses such as payroll do not need to be repaid if certain criteria are met, they do come with origination fees from the government.
But, perhaps even more important than the fees being generated, the PPP loans serve as inroads to new customers that are hard to come by for de novo banks, said Giuseppe “Joe” Femia, vice president at the Boston-based accounting firm GT Reilly & Co.
“I would imagine a de novo gets into PPP lending and that’s a lead into potentially doing commercial and residential lending with those customers,” he said. “They could be a little more aggressive than an existing bank or credit union that is worried about liquidity.”
Teas estimates that roughly two-thirds of the bank’s PPP customers have translated into some kind of new deposit relationship for the bank.
De Novos Have Advantage
De novo banks are also at an advantage in the current climate because banks are less worried about lending right now, according to Femia, and because there are very few de novo competitors.
In 2007 on the eve of the Great Recession, there were 162 de novo banks, according to Teas, who also worked at a de novo bank that same year.
“A lot of banking clients got started around that time frame,” said Femia, referring to the Great Recession. “There must have been a number of new banks that popped up for lending needs.”
Teas said between 1995 and 2009, there were on average 125 de novo banks launched each year. But after the Great Recession, de novo activity dried up, with only 27 total de novo banks launched between 2010 and 2019, he said.
De novos do not have to worry about accumulating huge loan losses because they do not have a lot of built up loans, so can therefore focus on lending while most banks are pulling back to worry about their existing loan portfolios.
“In every economic downturn that I’ve been a part of, there are always creditworthy folks and deals you want to do as a bank,” said Teas. “We feel as though without having that legacy loan portfolio in place, we are going to be very well positioned to take on creditworthy folks and make loans over the course of the next several months during this crisis.”
