Comerica prioritizes forgiveness of larger PPP loans

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Comerica Bank in Dallas has begun inviting clients who received emergency loans through the Paycheck Protection Program to apply for forgiveness.

But only the largest accounts are getting a first crack at relief, executives said on a call with analysts Tuesday.

“It's difficult to predict what the volume would be, but we're going to concentrate on the larger customers first because we are still hopeful, quite frankly, that we get additional relief for the smallest borrowers in terms of simplifying the application,” said Comerica Chief Credit Officer Melinda Chausse.

This “tiered” strategy for dealing with what some expect to be a flood of applicants seeking to turn their loans backed by the Small Business Administration into grants is being followed across the industry.

"Banks that have opened the forgiveness process are primarily working with the larger borrowers,” said Nick Simpson, senior vice president of public affairs at the Consumer Bankers Association. “I don’t believe there has been a specific request, but it has more to do with the fact that there isn’t a streamlined process for them being discussed, and those are the businesses most likely to have dedicated financial teams to complete the applications."

The Treasury Department on Oct. 8 announced a simpler forgiveness process for borrowers with less than $50,000 in PPP loans. The Senate is scheduled to vote Tuesday on a bill that would expand the simpler process to loans under $150,000, but it’s fate is uncertain.

Nearly 72% of the $525 billion in PPP loans were for more than $150,000, according to Treasury data as of Aug. 8. While that covers the dollar amount, about two-thirds of the actual number of loans are below $50,000.

Nearly 1 million PPP borrowers are above the $50,000 threshold but still have loans below $150,000 and may find themselves at the back of the line for forgiveness if the process is ultimately not streamlined for them.

Banks are eager to initiate the forgiveness process on PPP loans, which would lead to a windfall as the SBA returns the balances on loans that aren’t earning very much in interest compared with other commercial debt.

Comerica has earned about $36 million in interest income from its PPP loans as of Sept. 30, for a yield of 2.27%, according to its third-quarter financial documents released Tuesday. That’s compared to an average rate of 3.48% for its entire commercial loan book, which includes the lower-earning PPP loans.

Comerica, with about $82.4 billion in assets, has about $3.8 billion in active PPP loans. About three in four are below $150,000, according to the bank’s latest disclosures.

Like others in the industry, Comerica held its reserves steady in the third quarter in hope that the economic damage from the coronavirus pandemic is largely behind the bank. As a result, Comerica reported $211 million in net income for the third quarter, nearly double its profit from the previous quarter but still down 27% year over year.

Chausse said the bank started a pilot application process for forgiveness, but SBA “was pretty slow to get their portal open and actually processing forgiveness applications.”

A Treasury spokesperson said in an email that all PPP borrowers are encouraged to apply for forgiveness as soon as possible no matter the size of their loan. Asked if there was a concern about smaller business owners getting caught at the back of the line if the process is not streamlined for them, a Treasury spokesperson said the SBA is working to expeditiously process applications.

Treasury Secretary Steven Mnuchin told the House Financial Services Committee on Sep. 22 that his agency was working with the SBA to “make sure that they can process those [applications] as quickly as possible.”

Getting a simpler forgiveness process for the smallest loans “was helpful, but not as helpful as we had hoped,” Chausse at Comerica said. For now, the bank is holding out for an extension of the simpler process for loans below $150,000.

“Those will tend to be more at the back half of the processing over the next quarter or so,” Chausse said.

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Small business lending Paycheck Protection Program Coronavirus Earnings Regional banks Community banks SBA Treasury Department Comerica Bank