The reasons some banks have a hard stop on PPP lending

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A number of banks are nearing internal caps for Paycheck Protection Program loans.

While there is no legal limit for PPP originations, several lenders have established hard stops for their participation in the program, including CBM Bancorp in Baltimore, Eagle Financial Bancorp in Cincinnati and Bancorp 34 in Alomogordo, N.M.

The reasons are varied. Some are paying close attention to liquidity and capital ratios. Others are trying to avoid overtaxing employees who process, service and handle forgiveness of the loans.

It makes sense to have a stopping point, industry observers said.

“I really think a lot of banks don’t want to go any deeper,” said Chris Marinac, an analyst at Janney Montgomery Scott. “They’re being very careful, particularly as you move down the size chain. They’re focused on customers they know.”

CBM Bancorp made the decision early on to limit its involvement to 20% of its capital, said Joseph Solomon, the $229 million-asset company’s CEO. The percentage is equivalent to CBM Bancorp’s lending caps for sectors such as hotels and restaurants.

The 20% cap was also one that wouldn’t strain the company’s liquidity, Solomon said.

“We felt it was prudent to set some sort of limitation, especially since it was a new product that we had never offered,” he added. “It was about controlling the number of applications we had. We believe that, when we look back, our decision will be the best one.”

Though it has made 100 Paycheck Protection loans, CBM Bancorp has yet to hit its internal cap of $8.6 million.

Eagle decided to cap PPP lending at $25 million, an amount equal to its line of credit with the Federal Home Loan Bank System, said President and CEO Gary Koester. He said the $144 million-asset company didn’t want to exhaust its access to liquidity, in part because of a “brisk mortgage banking business.”

Eagle disclosed in its quarterly filing that it had made 85 PPP loans totaling $22.4 million.

The $408 million-asset Bancorp 34 disclosed in its May 5 quarterly filing with the Securities and Exchange Commission that it would limit PPP loans 135% of its Tier 1 capital plus its loan-loss allowance, or roughly $59.2 million. The company still seems to have room to make loans, reporting $34.8 million in PPP approvals as of April 28.

BCB Bancorp in Bayonne, N.J., disclosed in its May 6 quarterly filing that it had stopped accepting PPP requests “due to the volume of applications received.” The $2.2 billion-asset company had closed and funded $56 million in loans as of April 15.

Calls to Jill Gutierrez, Bancorp 34's president and CEO, and Thomas Coughlin, BCB's president and CEO, were not immediately returned.

CBM Bancorp and Eagle also wanted to avoid overworking employees, including many who were pulled from other tasks to assist with PPP applications.

“We really needed to get people back in their proper seats,” Koester said, noting that Eagle’s mortgage servicing manager and chief information officer were heavily involved with PPP. Koester and one of Eagle’s executive vice president also spent hours preparing closing documents.

“There are functional limitations on what we could take on,” Koester added.

“There was the processing and then servicing” of loans, Solomon said. “Now we have to go through the forgiveness process, where the rules are constantly changing.”

Borrowers are now, on average, seeking smaller loans. It takes as much effort to handle those as it would much larger requests.

“We literally have people asking for $5,000,” said David Patti, director of communications and marketing at the $12 billion-asset Customers Bancorp in Wyomissing, Pa., which remains an active lender in the program.

Under those circumstances, banks that decide to hit the brakes "are making completely logical decisions,” Patti added.

Given the number of applications lenders have handled — more than 4.4 million PPP loans totaling $511 billion have been approved — many banks “have their hands full,” Marinac said.

“They’ve fulfilled their objectives and served their customers,” he added. “For most banks, this was never about money.”

To be sure, limits are not carved in stone. But the leaders of CBM Bancorp and Eagle said they would prefer to stick to them.

“It is hard to do isolated exceptions because you’re subjected to criticism,” Koester said. “Then again, the calls and demand for loans have also slowed down.”

“We would revisit our cap if it was necessary,” Solomon said, though he noted that doing so would necessitate a new regulatory filing to make shareholders aware of the change.

“We certainly wouldn’t turn our customers over to another financial institution,” he added.

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Paycheck Protection Program Small business lending Capital Liquidity Coronavirus
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