Stone Bank, Arkansas community banks use Paycheck Protection Program to connect with customers amid pandemic

September 7-13, 2020

By Daily Record Staff


For many larger regional and national financial institutions that have operations in Arkansas, the Small Business Administration’s Paycheck Protection Program (PPP) has weighed heavily on bank’s operations and profit margins as over five million companies have participated in the nation’s first true bailout for small business owners.


Surprisingly, new second quarter data from the FDIC shows that smaller community banks with assets of less than $10 billion reported strong loan growth of 13.5% year-over-year, driven mainly by lending activity related to the PPP initiative that handed out its last loan on Aug. 8.


One of those community banks, privately held Stone Bank of Little Rock, said it has benefitted from its participation in the PPP initiative approved overwhelmingly by Congress and signed into law by President Donald Trump on March 17. Under the $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES), U.S. lawmakers set side $350 billion to keep small businesses across the U.S. afloat after the nation’s economy went into a deep freeze when COVID-19 was declared a global pandemic.


In sharing information about Stone Bank’s participation in the program, Stone Bank’s Chief Lending Officer Nick Roach told The Daily Record that the rural community bank with locations across five Arkansas counties performed well in the second quarter amid the pandemic, surpassing a $500 million asset benchmark that the banking group set as a key goal in 2017. 


Under CARES Acts rules, PPP loans were intended to provide emergency aid to small businesses without collateral requirements, personal guarantees, SBA fees, or credit elsewhere tests. Although a recent  by the SBA inspector general says the program included loopholes allowing large corporations to apply for PPP loans, those eligible for the program were supposed to be “mom-and-pop” small businesses, certain non-profits, veterans’ organizations, self-employed individuals, independent contractors, and other businesses with fewer than 500 employees and less than $1 million in revenue.


Roach said Stone Bank was able to attract clients from every corner of the state and from as far away as upstate New York with average loan amounts at $1 million. He said once the program kicked off in the spring, the small-town Arkansas bank received applications at all six branches from businesses in all sectors of the state’s economy.


“In the first round of PPP, we are an SBA lender, so we had a little bit of a leg up.  We are used to SBA lingo, so my team tackled in a very short period of time over 350 PPP loans for more than $350 million,” said the Stone Bank executive. “We helped a lot of customers, and we got to meet a lot of non-customers. It was very rewarding to be able to help people who couldn’t get help from really large national banks.”


And although the PPP program began in chaos nationwide after nearly $350 billion in funding was exhausted in only two weeks following the highly touted launch on April 3, Roach said Stone Bank had a much smoother transition because it was SBA-approved lender already serving small business clients impacted by COVID-19.


“We had a lot of current clients, but we also attracted a lot of non-current clients in the markets that we are in,” he said. “We felt like we had a little bit more customer service on our side that just filling out this this [application] and send it to this website. We hand-processed every one of our applications and many times our teams were up at midnight to 2 a.m. and on Saturdays to get theses loans process for our clients.”


According to the SBA’s District Office in Little Rock, 21,754 PPP loans totaling more than $2.72 billion were processed in the first round of the program. On April 17, however, U.S. Treasury and SBA officials halted all applications in the pipeline amid technical delays and snafus that created backlogs at SBA district offices nationwide, including Arkansas. 


Amid criticism nationwide that larger SBA-approved lenders in the PPP program rigged the loan process to benefit large corporations and their bottom line to the tune of nearly $6 billion in commission and fees, Congress quickly approved the Paycheck Protection Program and Health Care Enhancement Act three weeks after the first launch. That new $484 billion bill, signed into law on April 24, increased PPP loans by $310 billion through the end of the summer.


By July 31, SBA’s District Office in Little Rock had processed a whopping $3.3 billion in PPP loans that were made to 43,181 businesses across the state. The average PPP loan was a tidy $78,246, keeping nearly 400,000 Arkansas workers off unemployment rolls, SBA Arkansas officials said. Nationally, 5,459 banks, credit unions, fintech and other financial institutions have processed more than five million SBA-approved PPP loans total $521.4 billion. 


In early July, Congress again extended the PPP program through to Aug. 8 to expend another $135 billion in obligated funds. Today, Roach said the community bank formerly known as Ozark Heritage Bank National Association had every PPP loan it processed OK’ed by the local SBA office. 


“Every one of our clients that applied that was eligible we originated that loan,” said Roach, noting that Stone Bank now has assets of $560 million with has six-full-service offices in Little Rock, Mountain View, Harrison, White Hall, DeWitt and Gillett.  


Besides Stone Bank and other small community banks across Arkansas that participated in the PPP program, the state’s four largest banks also had to modify their normal operations to tend to thousands of small businesses desperately seeking billions of dollars in forgivable loans.


Coming out of the Great Recession in 2009, Arkansas four largest banks all have increased their assets base beyond the crucial $10 billion milestone established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2008 as the regulatory threshold between super-community banks and larger regional banking groups.


Among the so-called Big Four Arkansas-based regional banks, including publicly traded Bank OZK, Simmons First National of Pine Bluff, Conway-based Home Bancshares and privately held Arvest Bank of Benton, second quarter earnings reports show that that each handed out combined PPP loans of more than $3 billion.


In a new report released on Aug. 21, SmartAsset analyzed data from the SBA to identify the most popular PPP loan lender in all 50 states. According to the report, Arvest Bank approved more than 15.44% of PPP loans given to Arkansas businesses were originated by Arvest Bank. About 91% of Arvest Bank’s PPP loans were for amounts of less than $150,000.


Also, Simmons First reported that it had $963.7 million in PPP loan originations in the second quarter, while Home Bancshares processed $848.6 million of the SBA-approved loans in the three-month period that ended June 30. Bank OZK noted in its quarterly earnings report that it funded $462 million in PPP loans.


Now that the SBA is now no longer accepting applications after the Aug. 8 cutoff date, Arkansas banks have shifted to the loan forgiveness phase of the program. Although the SBA and U.S. Treasury open the loan forgiveness application portal on Aug. 12, further guidance from the Trump administration is expected to be released in the coming weeks, including a possible provision to fully forgive all PPP loans under $150,000. Still, the current threshold for loan forgiveness requires small business owners to use 60% of their proceeds or more to cover payroll costs.


Also, Congress is also looking to claw back some PPP loans after many critics, including the SBA’s own inspector general, said the program was rife with fraud, tilted in favor of larger businesses, and left out many black and minority-owned businesses struggling to stay afloat. One recent report by the U.S. Black Chambers said 25% of black-owned businesses across the nation could go bankrupt during the pandemic. That same report lambasted Congress for not including a requirement in the CARES Act to collect data on the number of black and minority businesses approved for PPP Loans.


Edward Haddock, administrator for the local SBA District office in Little Rock, said that PPP loan data collected by the federal agency reflects only information submitted by lenders that process the applications.


“Approximately 75% of all PPP loans did not include any demographic information at the time of loan application,” Haddock told The Daily Record. “The loan forgiveness application expressly requests demographic information for borrowers so that SBA can better understand which small businesses are benefiting from PPP loans.”  


  • Stone Bank’s Chief Lending Officer Nick Roach
    Stone Bank’s Chief Lending Officer Nick Roach