A ‘turtle bank’ plays catch-up in small-business lending

American Banker

By John Reosti

2 July 2019

Provident Financial in Iselin, N.J., has partnered with a fintech to become a stronger small- business lender.

The $9.8 billion-asset company is working with Fundation to offer unsecured small-dollar loans to commercial clients. While available in Provident’s more than 80 branches, applications for loans as big as $250,000 are also being accepted online.

“We wanted to offer something for our customers that was convenient,” said Josephine Moran, Provident’s director of retail banking. The goal is “to offer options to customers. We were searching for solutions for that part of our business.”

The decision to offer unsecured loans might seem odd for a bank known for its conservatism.

“They’re slow and steady,” said Mark Fitzgibbon, director of research at Sandler O’Neill, adding that analysts at his company often refer to Provident as “the turtle bank.”

Provident “just plods along and produces good results in good environments and bad environments,” Fitzgibbon added. “They’re very disciplined on credit and interest rate risk. I think it’s a fabulously well-run bank.” Net income totaled $30.9 million for the quarter that ended March 31 and $116 million in 2018.

That being said, the digital lending push still meshes with Provident’s risk appetite since Fundation holds most of the loans, Fitzgibbon said.

Provident has hit on “a creative way to help small-business customers,” he added.

Indeed, creating new relationships with small businesses should over time help Provident make progress diversifying its loan portfolio. More than half of its loans at March 31 were commercial mortgages or multifamily credits. “It’s important that you’re with the business from start to finish,” Moran said. “If you can capture the startups, earn their trust, gain their relationships, you assist them with their growth, they’re going to be with you for life.”

Similar moves could make sense for other banks that want more contact with small businesses “but do not want to underwrite risk below a certain threshold,” said Walt Levengood, vice president for sales and business development at the business financing firm Nav.

“If you want to fund the loan, by all means put it on your balance sheet,” Levengood said. “But you won’t insult the businesses in the instances where you don’t want to fund loans.”

While it may not immediately lead to meaningful loan growth, the Fundation partnership should give Provident a better shot at capturing the rest of the banking relationship from potential small-business clients, including low-cost deposits.

To that end, Provident is developing a product that combines a checking account with other products from its small-business suite.

“It’s still in the process, but what we’re looking at is a checking account that bundles things such as such as merchant services, payroll and lending,” Moran said. “You want to offer convenience at optimal pricing. You want to make it very easy for them, because small businesses need all these services and it entices them to bring their entire relationship to us.”

Small business “is such an important part of Provident’s funding base,” Fitzgibbon said.

Provident began the Fundation partnership at the end of February. While she declined to discussion the amount of loans processed, Moran said she is satisfied with the early results and bullish on small-business banking prospects generally.

“So far we’re very pleased with our relationship” with Fundation, she said. “It’s opened up another door for us. … There’s a huge opportunity for us, and we’re going for it.”