A government-backed emergency loan program for small businesses struggling to survive the COVID-19 pandemic was supposed to be a surefire payday for banks.

Indeed, many banks will earn millions from the Paycheck Protection Program: More than 30 banks could earn as much from emergency small-business loans as they reported in net revenue for all of 2019.

"It could be enormously profitable for us, maybe the most profitable thing we've done," said Rick Wayne, president and CEO of Northeast Bank, which booked a $9.8 million gain from selling its PPP loans. Northeast could earn as much as $4 million more from the program in additional PPP loans and as a correspondent lender.

But it might not be enough. PPP has been a massive headache for banks. Policymakers have repeatedly changed the guidance, several small businesses have filed lawsuits alleging banks favored larger clients, technical issues forced long hours, and the forgiveness process remains deeply uncertain — raising financial, legal and reputational risks.

The PPP fee ranges from 1% to 5% of the loan amount, depending on loan size, and analysts at Keefe Bruyette & Woods who have tracked PPP fees across roughly 200 banks reported a median fee of 3%. If their fees do fall at the midpoint of the range, dozens of community banks that have been particularly active in PPP could generate total payments from the program that would surpass their pre-provision net revenue in all of 2019, according to an S&P Global Market Intelligence analysis that examined PPP totals from the Federal Reserve's liquidity facility disclosures.

The liquidity facility disclosures can include PPP loans that banks have purchased, which would not yield an origination fee that can boost the revenue depositories earn from the loans. Also, the fee estimates in the analysis do not account for other costs incurred by the bank such as payments to lead-generation companies or technology purchases to handle the process.

Still, for many small banks — those with assets under $250 million — the program can be a significant windfall. A handful of banks with more than $1 billion in assets would also surpass their pre-provision net revenue in all of 2019 with just PPP fees.

The nation's largest banks have processed significantly more PPP loans, likely yielding hefty fee totals. But with much larger revenue bases, the fees will represent a modest boost to the top line. JPMorgan Chase & Co. issued the most PPP loans out of any bank, processing $28.80 billion of loans as of June 20. That could yield the bank $863.9 million in fees, or roughly 2% of the bank's pre-provision net revenue in 2019.

While many banks will book millions in PPP fees, the program carries risk and cost. JPMorgan is one of several large banks facing class-action lawsuits over their handling of the program. Banks are responsible for deciding whether a borrower has met forgiveness qualifications. Guidance from the Treasury Department and the Small Business Administration has changed multiple times, creating work and confusion. And the Office of the Comptroller of the Currency flagged PPP lending as a potential distraction for compliance with the bevy of regulations banks have to follow on a regular basis.

"I absolutely see liability risk," said Rob Klingler, a partner for Bryan Cave Leighton Paisner who advises financial institutions. "But beyond that, initially it is just the cost of processing the applications. Even if you do it right, it might be too costly."

Further, banks can only recognize the fees as the loan pays off. If a borrower requests forgiveness in short order, the fees should boost third- or fourth-quarter earnings. But if a borrower views the program as a traditional loan and repays it over the course of two years — or even more, as recently issued loans have five-year terms — the fee presents a much less attractive return. An uncertain payday, extra hours worked and potential legal or reputational risk combine to raise the question: Will the millions in fees be adequate compensation?

"I'll have to answer that question in 24 months," said Stephen Carmack, chairman and CEO of Legacy Bank, a Hinton, Okla.-based bank that could earn nearly $9 million in fees after reporting $3.5 million in net revenue last year. "Our smallest PPP loan is $100 … we probably won't be adequately compensated on that one."

Carmack said the fees will be used to boost the company's loan loss reserves, providing an additional buffer for a pandemic-induced recession that will likely trigger significant loan defaults.

Northeast Bank's Wayne said his company plans to use the fees to fund the company's bonus pool for employees who worked long hours to process the loans. Beyond that, he said he hopes to use the fees to fund loan growth. Lacking that opportunity, the funds could be used for stock repurchases or potentially supporting the bank's dividend.

"Our hope is we'll be able to use the capital to leverage our balance sheet. That's the most profitable thing we can do," Wayne said.

Of course, many bankers, including Wayne, say the fees were never the motivating factor. Banks rushed to build out their PPP lending capabilities to serve their customers in a time of need. At the same time, some banks turned to lead generation services to acquire more loans.

"We went into the first round with the idea that if we broke even that was good enough because we're helping our communities," Carmack said. "As we got to the second round, we realized there were people who couldn't talk to a human being and can't get help, and we had the capacity to do more. We fully anticipated that we could help them efficiently and be profitable."

For Northeast Bank, the lender expects to book $9.8 million in gain from $457 million of PPP loans, representing a yield of 2% when the bank’s origination fee was roughly 4%, Wayne said. The delta represented both the fees paid for leads as well as the discount when Northeast sold the PPP loans to The Loan Source, a nonbank that is buying PPP loans on the secondary market.

While the loan sale ate into the bank's profits from the loans, it also resolves some uncertainty. By selling the loan, the bank can recognize its fees immediately as opposed to waiting for forgiveness or for the borrower to pay it off. The loan sale also transfers the servicing obligations, as well as the forgiveness process. Wayne said Northeast Bank has a deep relationship with the nonbank, providing confidence that its clients would continue to receive strong customer service.

For Wayne, the PPP worked as intended, representing a win-win-win: small businesses get much-needed aid, their employees retain their jobs and banks receive an income boost at a deeply uncertain time.

"The 4,000 loans we originated had probably 50,000 or 60,000 jobs associated with them," he said. "We try to be a good corporate citizen. If we never made any money, we would have done that. As it turns out, we actually made a lot of money."