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De novo banks jump-start growth with PPP loans

De novo banks are capitalizing on unexpected growth opportunities from the government's Paycheck Protection Program, boosting their efforts to develop a robust customer base.

De novo banks that opened right before the ongoing COVID-19 pandemic are reporting a quicker start than they anticipated thanks to the Small Business Administration's Paycheck Protection Program. And de novo banks still in organization say they are eager to open their doors to support their communities with clean balance sheets and strong capital positions.

"As we have endeavored to serve the community and help sustain and rebuild the economy through our PPP activity, we have really catapulted our evolution as an organization," said Jonathan Homeyer, president and chief lending officer of Gulf Capital Bank.

The Houston-based bank began operating under regulatory approval on Dec. 18, 2019. It would have taken about 18 months to onboard the amount of new customers it has secured through its PPP participation, Homeyer said in an interview. Operating with about 16 employees, Gulf Capital Bank has approved about $91.2 million in PPP loans.

The bank's rapid growth has also moved its hiring plan forward by six months, Chairman and CEO Ed Jones said. The company plans to have 25 employees by the end of June.

"We are trying to turn this short-term PPP business into long-term clients of Gulf Capital Bank," Homeyer said. "That's our focus."

Another de novo that opened right as the novel coronavirus began spreading throughout the U.S. has also reported accelerated growth due to PPP participation.

"That was not our intended purpose," Triad Business Bank CEO Ramsey Hamadi said in an interview. "But yes, it clearly has advanced our core deposits and relationships in the community simply because people were so appreciative of what we were able to do."

The Greensboro, N.C.-based bank opened for business on March 16. The bank's first order of business was to become an approved SBA 7(a) lender in order to participate in the program, Hamadi said. Triad Business Bank was approved within days and processed 350 PPP loans totaling about $108 million.

De novos still in organization are eager to open and help their communities recover. Farmers Branch, Texas-based TYME Bank's proposed CEO Joseph Hansen said the ongoing pandemic has emphasized the need for community banks.

"It's clear that bigger is not better," Hansen said. "Relationships are the winner. You could call small to medium-sized businesses … and ask them what their problems were. They're going to tell you 'We couldn't reach a banker.'"

Clean balance sheets could also represent a competitive advantage. As banks focus on internal operations due to the pandemic, such as credit quality issues, de novos will be able to better focus on supporting their communities, Hansen said.

Organizers at Chattanooga, Tenn.-based RockPoint Bank NA said they see opportunity but will need to open later than originally projected due to COVID-19. The bank received its conditional regulatory approvals in May after suspending its capital raise. The de novo kicked off its $30 million equity raise in February but paused in March as COVID-19 spread throughout the country.

"We didn't feel like it was an appropriate time to be raising money because priorities had changed for so many people, so we just shut down the equity raise," proposed CEO Hamp Johnston said in an interview.

The proposed de novo resumed capital-raising efforts in May and extended its deadline to raise the capital to Oct. 31 from April 30. RockPoint Bank NA now anticipates opening in the mid- to late-fourth quarter, Johnston said.

"I'm not sure any [de novos] anticipated this, but there is a need," Johnston said. "We all want to support our communities, and we'll be able to open our doors with clean balance sheets and capital to deploy. We are very excited to help our community."