PPP work helped Minnesota’s community banks gain ground on bigger ones

·4 min read

Steve Simenson, veteran owner of Goodrich Pharmacy in Anoka County, was worried in spring 2020.

Two of his four pharmacies were shuttered because they were in medical clinics shut down by COVID-19. Revenue dropped by 25% across the entire business and Simenson was faced with the prospect laying off half of his employees.

Simenson contacted his banker about securing a forgivable loan from the Small Business Administration's Paycheck Protection Program. He was a long-time customer of one of the Twin Cities' "big banks" but it wouldn't help him. He declined to say which bank it was.

An employee referred him to Village Bank, which has most of its locations in Anoka County. There, banker Chris Schroepfer helped gather the requisite information from Simenson, submitted the application and got the first of two $200,000 loans funded within two weeks.

"Village Bank made it happen," Simenson said. "We also moved a loan to them from the other bank and they refinanced it at a significantly competitive rate.''

Goodrich employees doubled down on telehealth consultations and also got 16,000 Anoka County residents vaccinated at no charge, from nursing homes to homeless shelters.

Village Bank turned a government business-relief program into a growth strategy. And it's not the only community bank that disproportionately used PPP to take business from the likes of U.S. Bank and Wells Fargo.

Village, Bremer Bank and Sunrise Banks, as well as nonprofit community-based financial institutions such as Meda, were aggressive in working overtime to assist customers and non-customers to get PPP funds of $50,000. And the SBA, last year and earlier this year, gave preference for periods of time to small borrowers, disproportionately female and minorities, to get their loans processed.

"The SBA did a wonderful job and we invested and implemented quickly to do the best we could for those Main Street customers," Aleesha Webb, president of Village Bank, said. "We've now had time to work with them and the relationships are resulting in growth in assets. And revenue and income."

The SBA paid a loan-origination fee to bankers that ranged from 5% for loans under $350,000 to 1% for loans over $2 million. The bankers also got six-figure fees for loan processing.

Webb said Village Bank didn't make much money on the 827 PPP loans it originated because it invested in related software and paid workers for nights and weekends, plus bonuses.

About 50% of the PPP loans that Village Bank made were to non-customers. And the financial benefits are starting to show, according to bank and regulatory filings.

Village Bank, started in 1993 by Chairman Don Kveton, Webb's father, earned $3.2 million in 2019 on assets of $302 million in 2019. Earnings were only $3.3 million on a 33% bigger asset base of $403 million last year. In the first six months of this year, Village Bank already has earned $3.2 million on assets that ballooned to $428 million.

Village Bank has grown over two years from one of the 10 largest to one of the five-largest SBA lenders in Minnesota.

Meanwhile, Bremer Bank, the state's largest PPP lender, with 7,240 loans worth $1.27 billion, has seen its results improve in 2021.

In the first six months of 2021, Bremer earned a strong 14.5% return on equity, and net income was $102.3 million compared with $77.1 million in the first half of 2020.

CEO JeanneCrain cited improved credit quality, which allowed the bank to release some reserves taken last year into earnings, and also the PPP.

Sunrise Banks, the second-largest PPP lender in Minnesota according to iBanknet, declined to discuss the impact of PPP on its results.

Regulators allowed community bankers to take on more loans through PPP than supported by their equity capital last year because it was an emergency and the government backed the loans.

The huge national banks have denied that they favored larger customers with PPP loans. Wells Fargo pledged the $420 million it made in fees on PPP loans to nonprofit Community Development Financial Institutions (CDFIs) that assist capital-thin minority entrepreneurs.

Federal Reserve Governor Michelle Bowman said in June that community banks and CDFIs were critical for getting PPP funds to small businesses.

"While I have heard from community groups that small businesses struggled to navigate the PPP application process, especially those that did not have a preexisting banking relationship, community banks and (CDFIs) made a concerted effort to meet small-business needs," Bowman said, according to the American Bar Association Journal.

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