The Sunshine Economy: Why A South Florida Bank Was A Big Lender Of COVID-19 Rescue Money
City National Bank of Florida was one of the most prolific lenders of government rescue money during the pandemic.
Jorge Gonzalez still has voicemails from some of the toughest days of the pandemic. The messages are from business owners who secured government emergency loans through the bank he leads.
City National Bank of Florida was one of the most active banks, lending money through two federal economic pandemic rescue programs. One was through the Federal Reserve. The second was a congressional program — the Paycheck Protection Program.
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In all, the bank processed about $4 billion of loans to thousands of companies. That represents more than a normal year's worth of lending for the community bank, which has been owned by Chilean bank BCI since 2015.
"We felt like it was our responsibility to really help the government distribute these these funds to businesses that really needed these funds," said Gonzalez, CEO of City National Bank of Florida.
This bank based in downtown Miami has fewer than three dozen branches in south and central Florida, but borrowers from Hialeah to Honolulu, Weston to Wyoming used the bank to secure the cash.
Through the Paycheck Protection Program, City National Bank of Florida lent over $4 million dollars to a Burger King franchise in Alabama and $150,000 to a trucking operator in Wisconsin. Through the Federal Reserve program, the bank arranged a $250,000 loan for a Coral Gables dentist, and a $50 million loan to a plastic surgery medical device maker in Broward County.
The central bank's Main Street Lending Program was announced in April 2020, aimed at small and medium-sized businesses. The Fed pledged to buy $600 billion of loans made through banks to companies. The borrowers could use the money pretty much however they like and they have five years to pay back the loan, at an interest rate of just over 3%.
Despite the Fed's aggressive appetite, less than $20 billion was lent out through the program before it was closed in January. As an industry, banks did not embrace the effort. But Gonzalez's bank did.
"We were active because we felt that there was a significant opportunity for us to support companies that clearly had an opportunity to continue to grow — businesses that have a proven track record of success prior to the pandemic," he said. "It was a corporate responsibility of us, as a financial institution. And it really allowed us, in all honesty, to not only support existing clients, but acquire new banking relationships as well."
Eleven cents of every dollar companies borrowed nationwide through the strategy were loaned out through City National Bank of Florida. One out of every five loans made were made by the bank. No other bank made as many loans under the program.
"If these companies and the overall community and economy continue to grow, then we all do well. And I think that's what we're seeing happening as we speak," Gonzalez said.
One feature of the Main Street Lending Program was that banks can sell most of the loan to the Federal Reserve, but they have to keep a 5% interest. While the banks weren't lending their own money, requiring them to keep a small piece of each loan keeps the bank on the hook if a loan goes bad.
"This is a true underwriting. We really had to look at each individual situation and look at pre-pandemic numbers and make sure that we felt comfortable that we were able to underwrite the repayment capacity of these [companies]."
Gonzalez said City National Bank of Florida has sold its Main Street Lending Programs loans to the Fed and its 5% share of the loans are performing fine, meaning borrowers are making their payments.
This is a big change from some of its regular borrowers in the early days of the pandemic. A year ago, the bank extended loan deferments to borrowers owing about $3 billion. It represented about a quarter of all of City National Bank of Florida's outstanding loans. Now, Gonzalez said, most of those borrowers have caught up and the bank has not taken any losses or charges-offs from that experience.
"We're seeing businesses headed in the right direction, the economy seems to be also plugging in the right direction," said Gonzalez. "I think the economy is certainly heading in the right direction."
'I Just Play Back These Messages. It Made It All Worthwhile'
The Paycheck Protection Program was crafted in a matter of weeks and first passed Congress in late March 2020. The program has been criticized for not doing enough to ensure small companies could easily participate and for relying on banks who focused on their existing customers to dole out the money. The loans do not have to be paid back if the money is spent mostly on keeping employees on payrolls.
City National Bank of Florida processed loans totaling about $2 billion under the program.
"If you had asked me 30 days prior to that happening, 'Hey, you're going to have to process $2 billion in loans, 9,000 applications in the middle of a pandemic [with] everybody working remotely. Could you do it?' And I would have said, 'Hell no. No way,'" Gonzalez said.
Despite its active role last year, the bank is no longer accepting new applications for the current PPP. The Biden Administration has extended the deadline to the end of May and has moved to focus efforts on very small companies.
Gonzalez said the bank saw a big drop-off in demand for PPP money and the process "from a government standpoint became very complicated and arduous."
About $14 billion of PPP loans have been made in 2021 to Florida companies through the beginning of April, according to data from the Small Business Administration. In 2020, $32 billion was lent out to Florida firms.
Some owners of those companies are behind the voicemails Gonzalez saved.
"When I get a little tired, I just play back these messages," he said. "It made it all worthwhile."