Thriving in a difficult time

Against the backdrop of a pandemic, last year was surprisingly good for small financial institutions in the Rochester region.

“We had such a great year assisting our customers managing through a very difficult time,” says Philip Pecora, president and CEO of the Genesee Regional Bank. 

GRB, a full-service bank with five suburban locations, was able to increase its net income by 80 percent in 2020. 

Other small local financial institutions also ended 2020 with substantially greater profits, loan portfolios and total assets, and more customers or members, than they had at the beginning of the year. High demands for loans, particularly residential mortgages and Paycheck Protection Program commercial loans, helped fuel their growth.

The local scenario mirrors the national picture. Profits at small banks jumped last year, even though smaller financial institutions often struggle to compete with larger rivals.

Federal regulatory agencies classify banks that do not exceed $1.098 billion in assets and credit unions that have no more than $100 million in assets as “small.” Three of the local financial institutions in this article are in that category. The fourth, the Family First of New York Federal Credit Union, had about $240 million in assets at the end of last year. 

Monroe County, like much of the United States, began feeling the pandemic’s economic effects during the first quarter of last year. Many businesses reduced their hours or closed, and by April the county’s unemployment rate had reached a record high of 15.1 percent. Some customers or members of local banks and credit unions began having difficulty meeting their financial obligations. 

“Members had cases where they may have been over-drafting their accounts to make payments,” says Tom Dambra, Family First’s president and CEO.

A rebounding housing market

Home sales, the driver of the residential loans that make up large parts of many lenders’ portfolios, declined as Realtors and their potential customers avoided physical contact.

“We were unable to really perform our real estate duties in person from the March lockdown until the end of May in the Finger Lakes region,” says Lanie Bittner, president of the Greater Rochester Association of Realtors. “April was by far the slowest April we’ve seen in ages.”

As fear of the virus waned, the national housing market rebounded. Total home sales in the U.S. were projected to hit 5.7 million by the end of 2020, a nearly 6 percent increase over the previous year. 

The local market improved as the year progressed. By the end of 2020, 14,218 homes had changed hands in the 12-county area that GRAR covers, 8,348 of them in Monroe County.

“Despite the pandemic and the challenges to our economy, and certainly our health, there was great demand for housing,” Pecora says.

Historically low interest rates helped fuel that demand. In December, the monthly average rate on a 30-year fixed mortgage in the U.S. was 2.68 percent, nearly 2 percentage points lower than it was two years earlier. 

“Some people wanted to take advantage,” says Melissa Marquez, CEO of the Genesee Co-op Federal Credit Union. “Why not buy a house now if I can?” 

Relatively low home prices led buyers to sign on the dotted line.

“We have a great first-time homebuyers’ market,” Bittner says. “Even though pricing has gone up over the past few years, we are still considered to be an affordable area.” 

The median sales price on a home in metro Rochester was $161,000 last year, a far cry from the statewide median of $310,000. 

In addition, the work-from-home trend driven by the COVID-19 pandemic freed some potential homebuyers from having to live close to their jobs.

“We did see some people moving in from some of the bigger cities, now that there’s work-from-home,” Bittner says. 

Home purchases in turn led to higher-than-expected loan totals for small local lenders. Roughly $3 million of the approximately $5.5 million in loans that the Genesee Co-op dispensed in 2020 was in the form of residential mortgages. 

“We’re predominantly a mortgage lender for first-time homebuyers,” Marquez says.

Family First ended the year with almost $205 million in loans on its books, a more than 11 percent increase over the previous year. Nearly 73 percent of the loans were for real estate. 

“There was a lot of value generated in our organization as a result of us being able to do loans for residential mortgages and smaller commercial real estate,” Dambra says.

Of the $541 million in loans that GRB gave out last year, $451 million were in residential mortgages, nearly 77 percent more than the bank dispensed in 2019.

“Our sales team is really focused on the real estate agents,” Pecora says. “They really drive the business.”

Though the Lexington Avenue Federal Credit Union does not write many residential mortgages, the lender has been able to cash in on the housing boom in part through giving out another type of loan.

“We were focusing a lot on home-improvement loans,” CEO Aaron King says. “A lot of people staying at home that had money and were still working were really focusing on improving their homes.” 

The credit union logged nearly $9.8 million in home improvement loans in 2020, a nearly 175 percent increase over the previous year.

The boost from PPP

Local lenders and small businesses also made use of the Paycheck Protection Program when trying to breast the pandemic’s economic waves.

The PPP was one element of the more than $2 trillion Coronavirus Aid Relief and Economic Security Act that former President Donald Trump signed on March 27. Under the program, small businesses, nonprofits and other organizations could obtain very low-interest, forgivable loans from the U.S. Small Business Administration in order to keep their employees on the job. Congress appropriated $670 billion for the program in 2020. The funds helped borrowers weather the plummeting economy.

“The PPP funds allowed them retain their employees, and obviously made up for a big part of their expenses, and helped them through that period,” Pecora says.

The program helped financial institutions deal with the faltering economy as well. GRB, which typically does about $100 million in regular commercial loans a year, logged only $85 million in such loans in 2020. 

“There wasn’t a lot of demand for new credit,” Pecora notes. “Businesses just weren’t out there borrowing a lot of money.”

PPP loans raised that total to $217 million, and gave the bank the chance to pull in other business, even from larger competitors. 

“There was some correlation between the PPP and our traditional commercial lending,” Pecora says. “Because we were able to deliver to them on the PPP, not only to our own customers but to prospective customers, that ended up (with) them bringing over their entire relationship.”

Lenders also earned cash from dispensing PPP loans, in the form of SBA fees paid for processing the forgivable loans. Initially, there were three levels of fees that ranged from 5 percent on loans of up to $350,000 to 1 percent on loans of $2 million or more. 

Congress subsequently altered that fee schedule as part of the Consolidated Appropriations Act. Under the new schedule, which took effect on Dec. 27, a PPP loan of up to $50,000 earns a fee of either 50 percent of the amount borrowed or $2,500, whichever is less. Loans of more than $50,000, but no more than $350,000, earn 5 percent of the amount involved. The fees for loans of $350,000 or more remain the same.

Putting off loan payments

While boosting their loan portfolios, small lenders also took steps to help customers who were having difficulty paying their loans. Borrowers were sometimes allowed to sign forbearance agreements under which they could temporarily put off making loan payments without suffering financial penalties or losing their properties in foreclosure. Both the CARES Act and New York regulations allow forbearances.

“We provided forbearance under the CARES Act to 15 members with $922,000 in mortgages, and have modified 12 of their mortgages so far totaling $687,000,” Marquez says. “We modified about 90 consumer loans totaling $600,000, giving them two to four months without payments.”

Small lenders also took other measures to reduce the financial burdens of their customers or members.

“As a not-for-profit organization who was looking to support our membership, we in many, many cases waived any kind of fees that were the result of making payments late, overdrawing accounts,” Dambra says. “It was important that we stood by our membership and helped them in any way we could.”

Measures of this kind also helped local financial institutions avoid writing off loans, and keeping customers and members.

The dispensing of residential mortgages, home improvement loans, PPP loans and other forms of lending, along with the fees lenders charged for such services, helped some small banks and credit unions finish 2020 with very healthy bottom lines. Lexington Avenue ended the year with an almost $354,000 in profit, an increase of more than 101 percent over the amount earned in 2019.

“The largest contribution to the increase is the origination fees increasing from $103,079 to $635,211,” King says.

GRB processed $2.87 million in PPP loan fees last year.

“The PPP fees were very helpful to banks as they provided a revenue source at a time of great uncertainty where traditional loan demand by small businesses dropped dramatically,” Pecora notes. “More importantly, the income provides a much-needed buffer for potential future loan losses related to the sharp economic contraction triggered by the pandemic.”

Higher fee income for residential mortgage originations also featured prominently in GRB’s profit, which rose from roughly $10 million in 2019 to $18 million last year—an 80 percent increase. 

The Genesee Co-op gave out $650,000 in PPP loans last year, almost 12 percent of its new loans. Though that brought in $31,800 in fees, its profit fell by almost 14 percent to $373,500.

“Investment income dropped 17 percent due to the drop in rates from the recession, and we cut our fee income (for non-PPP loans) for four months during the pandemic,” Marquez says. 

Despite that, the credit union’s loan portfolio helped it finish last year with more than $28 million in assets, a more than 21 percent increase over 2019. GRB’s assets totaled $751 million at the end of the year, almost 31 percent more than it had the previous year. Family First and Lexington Avenue also ended up with substantially higher assets than they’d had at the close of 2019. 

“We were able to grow our membership base, and we funded the most loans that we ever have,” King says.

By the end of 2020, the credit union had 479 new members, bringing its total to about 4,350.

As a group, GRB and the other small local financial institutions view the coming year with a mixture of feelings. President Joe Biden’s $1.9 trillion stimulus package is moving slowly in Congress, but the $1 billion left in the original PPP is now available. Pecora wonders whether the SBA’s online loan application portal will be as difficult to use as it was in 2020.

“For the second round (of PPP loans), they changed the portal. We hope for the better,” he says. 

At the same time, he views the year with a measure of optimism.

“I think that an environment like this really provides an opportunity for smaller community banks to grow by assisting the community,” he says.

Marquez, however, thinks 2021 could be a “challenging year.”

“A great deal of uncertainty is never good for the economy,” she says.

Mike Costanza is a Rochester Beacon contributing writer.