3 Local Banks Disburse $447M in PPP Loans

YOUNGSTOWN, Ohio – As the dust settles on Round One, $349 billion for the Paycheck Protection Program, and Round Two, $310 billion, is ready to open at 10:30 this morning, local bankers say that in many instances the small-business relief program went better than its opening days would indicate. 

“Mostly, it was capacity issues. After three or four days, we figured out some additional ways to get more people involved in the process,” says Gary Small, CEO of Home Savings Bank. “Considering the scope of the SBA on a normal day, to be able to run a year’s worth of activity in less than 10 days, they were working hard.” 

In all, Home Savings Bank approved nearly 800 loans totaling $240 million over the 12 days that applications were accepted. 

Cortland Bank President and CEO James Gasior says his institution received approval for 235 loans for a total of $47 million.

“It was probably taking half an hour, 45 minutes, to get them into the system,” Gasior says. “We recognized that in order to get these in as soon as possible, between the loans we had and the larger banks having their large volumes, we had to pull people into the application process. We had not only our credit department’s backroom functions but also our lenders to assist. There were also shifts, with some working days and others on evening shifts.” 

At Farmers National Bank, its chief banking officer, Mark Witmer, says his bank approved “just shy” of 800 loans with an average value of around $200,000 – a total of about $160 million. 

“We were able to get the majority through on the first run,” Witmer says. “There might have been a few that didn’t have all the information or didn’t get through in time, but we’re confident that we’ll get everyone in this second round.” 

Home Savings, Farmers and Cortland banks combined to deliver $447 million in first-round PPP funds to 1,835 small businesses in the region. 

Some industry analysts expect the $310 billion Round Two to go quickly, as banks ready applications that weren’t submitted in Round One. The Small Business Administration will reopen its application portal at 10:30 a.m. Monday.

Banks that have applications that they didn’t submit, including Home Savings, Farmers and Cortland, have set them aside and will have them ready to submit as soon as the Small Business Administration reopens the portal.

In Round Two, $60 billion has been earmarked for community banks and community development institutions. 

“Community banks represent about 95% of banks in the country. If you trim off the top 100 banks by size – the trillion-dollar banks – the rest are community banks,” says Paul Merski, vice president of congressional relations and strategy for the Independent Community Bankers of America. “Community banks do half of all the small-business lending in the country. It’s really their niche.” 

The association advocated for a quarter of the funds in Round Two of the Paycheck Protection Program to be set aside for banks with $50 billion in assets or less. 

“In this economic and health crisis, banks are the ones channeling the government money to businesses and individuals,” Merski says. “The biggest parts of the Cares Act are lending programs administered through banks and the rebate checks that are almost exclusively coming through as direct deposits.” 

In total, the SBA approved 1.7 million Paycheck Protection Program loans, with nearly three-quarters – 74.03% – valued at less than $150,000, according to a report issued by the administration April 16, the day the program closed.  

In Ohio, 59,800 loans were approved for $14.1 billion, while neighboring Pennsylvania had 69,657 approved for $15.69 billion. 

The SBA has said it will release more granular information that details where the loans went geographically and to which industries. That information was unavailable at press time. 

“Ohio was second in the Great Lakes Region, second only to Illinois, which has a huge population with a lot more businesses than Ohio. Ohio was very well-positioned for something like this because of our lender community like KeyBank and Huntington and Fifth Third,” says Rob Scott, director of SBA Region 5, which comprises Ohio, Michigan, Indiana, Illinois, Wisconsin and Minnesota.  

In his district, the size of the average loan was $172,000 and while Scott says he doesn’t yet have data on the size of businesses receiving loans, he believes that average indicates a business with about five employees.  

Any business hitting the program’s cap of $10 million is one that likely sits right on the edge of the agency’s definition of a small business, he says. That definition includes franchisees, some of which – such as restaurant and hotel chains – drew criticism for receiving loans through the program. 

“On our website, we list thousands of franchises that we view as small businesses,” he says. “You’ll see places like hotel chains that are Hampton Inn or Hilton, but they’re not the corporations. The franchises are under the employment and revenue mark.” 

Across the country, Scott continues, 60% of all Paycheck Protection Program loans were distributed through banks with less than $10 billion in assets. No bank accounted for more than 4% of the total disbursed. Chase distributed $14 billion, the most of any in the country. 

At the outset of the program, there were fears that national banks would grab most of the money. The community banks say those concerns didn’t come to fruition. 

“Because of how fast this all came about, the bigger banks that have lots of IT muscle and can collect data and optimize and have the relationships with the SBA to do direct input, they didn’t get a chance to do any of that,” says Home Savings’ Small. “I don’t think it was unfair. I don’t feel like we were losing any business we otherwise would have had. In talking to some clients, it seems that some felt that with big banks they weren’t being prioritized.” 

In the week after Round One of the program closed, The New York Times reported some large banks – namely JPMorgan Chase, CitiBank and U.S. Bank – used tiered systems in their submission processes. In Chase’s case, clients with more than $25 million in assets with the bank were able to submit their application directly to their banker rather than using the bank’s online portal. 

“The big banks … did not have a single advantage over anyone, down to the smallest community bank in rural America,” says the SBA’s Scott. “Every loan had to be entered through our systems: E-Tran and a special system built for new lenders, the SBA Connect Gateway.”  

All three local banks report having business owners contact them after having problems getting their applications submitted.  

“We focused on our current customers first, but we did have a lot of customers from bigger, nationwide banks that were frustrated they couldn’t get through,” Farmers’ Witmer says. “As we prepare for the second round, we have taken applications from people who’ve said they want to move to a community bank and have that communication.” 

In the long run, it’s those new clients that will likely be better for the banking business than the Paycheck Protection Program loans.  

At a 1% interest rate – assuming the loan isn’t forgiven when a business keeps all its employees on payroll – it’s not a particularly enticing loan to have on the books. Banks do earn processing fees from the SBA, ranging from 1% to 5%, depending on the size of the loan, so there is some compensation. 

“In our case, it comes out to an average of 4% [earnings per loan],” says Cortland Bank’s Gasior. “By no means are we going to meet budget projections at 4% on all these PPP loans, but it’s secondary to the fact that … the objective of the banking community was to keep as many jobs and personnel employed as possible,” he observes.  

“The last thing banks want to do, especially for loan customers, is see a business not be able to succeed. That can turn into an asset quality issue, where we’re looking at loan impairment down the road,” Gasior says. 

With almost all money from the first round of the program allocated – banks have 10 days to put the funds into the applicants’ accounts – the next big question is the forgiveness process.  

The only guidance the Treasury Department issued is that “the loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the eight-week period after the loan is made; and employee and compensation levels are maintained.”  

While the FAQ document posted on the Treasury’s website details how a borrower can request forgiveness, how it will be verified remains unknown, says Stephanie Pulliam, managing partner of S. Jones LLC, an accounting and payroll firm in Warren. 

“You have to ask for forgiveness. So I’m telling all my clients that they have to look at this as a loan. It’s a 1% loan, but it’s still a loan,” Pulliam says. 

She also advises clients to prepare as if they’re going to get an IRS audit. “You’re going to be responsible in giving up bank statements, checks, EFTs, payroll reports, 941, your payroll tax deposits. You have to be very careful right now,” Pulliam says. 

When the second round of funding opens, the bankers are expecting to see the size of loans decline. It’s a continuation of a trend from the first round. On April 13, the SBA reported the average loan size was $240,000. Three days later, on the final day applications were accepted, that figure had fallen to $206,000. 

“Businesses that had large payrolls and number of employees were the first ones to get their applications in and they likely had more of a network working with them – accountants, wealth advisers, legal teams – to make sure they followed SBA regulations,” Gasior says. 

Editor’s Note: This story appeared in the May issue of The Business Journal. It has been updated to include the opening of the second round of funding for the Paycheck Protection Program.

Copyright 2022 The Business Journal, Youngstown, Ohio.