The Loan Source buys two PPP portfolios at end of second quarter

Two banks struck deals this week to sell their Paycheck Protection Program portfolios to The Loan Source, which has made a business of acquiring such loans.

Trustmark Corp. announced the sale of PPP loans totaling $354.2 million to The Loan Source on Wednesday, allowing the $16.9 billion-asset lender to recognize $18.2 million of fees in its second-quarter results. The move also frees staff to focus on traditional lending channels, Brad Milsaps, who covers Jackson, Mississippi-based Trustmark for Piper Sandler, wrote Wednesday in a research note.

Dime Community Bancshares in Hauppauge, New York, announced the sale of its 2021 PPP portfolio – about $585 million of loans – to The Loan Source on Monday in a deal expected to add $20.5 million of second-quarter fee income. It should also boost tangible book value per share, which totaled $21.43 at March 31, by 34 cents.

Milsaps boosted his full-year earnings-per-share estimate for Trustmark by three cents, to $2.48. Trustmark reported net income of $52 million, or $0.82 per share, for the quarter ending March 31.

The loans represent substantially all the PPP loans the bank originated in 2021, Trustmark said in an 8-K Current Events filing with the Securities and Exchange Commission. Trustmark held $680 million of PPP loans as of March 31, so Wednesday’s deal reduces the size of its portfolio by more than half.

Dime, which has assets of $13 billion, reported PPP loans totaling $1.43 billion as of March 31. As with Trustmark, freeing staff to concentrate on what CEO Kevin O’Connor called “more traditional lending efforts” played a major role in Dime’s decision to sell.

“Now it is time to continue helping our clients by partnering with a well-respected firm, with deep expertise in the PPP space, to take over the ongoing servicing and forgiveness process for our 2021 originations,” O’Connor said in a press release.

New York-based The Loan Source and its servicing partner, ACAP SME, have acquired PPP portfolios from a number of banks, including $6 billion-asset Peapack-Gladstone Financial Corp., in Bedminster, New Jersey, $2 billion-asset Northeast Bank in Portland, Maine, and $2.6 billion-asset Southern First Bancshares in Greenville, South Carolina.

The Federal Reserve announced on June 25 that it would extend its Paycheck Protection Program Loan Facility, which The Loan Source and its partners have used to finance deals, an extra month, through July 31.

Congress created the PPP in March 2020 to provide emergency financial assistance to small businesses impacted by the coronavirus pandemic. Under the program, which was administered as part of the Small Business Administration’s 7(a) lending program, banks made loans and were later reimbursed by the federal government.

A total of $799.8 billion was lent under PPP, including $277.7 billion in 2021 prior to the end of originations on May 31.

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