EP13 - Interview with Commercial Banker - David Stahl from Hillcrest Bank, Salt Lake City, UT - PPP loan process

Welcome back. Thanks for tuning in. I am the ESOP guy and let's continue on this journey to an ESOP. So if you're listening, this podcast is primarily for those that are thinking that they might want to convert their company to either a partial or a full ESOP. So as we've gone through the last month of the economy, things have been very, very crazy. Um, this podcast is really going to be, this episode of this podcast is gonna be focused on the relevant change in the economy and really the downturn. As you're working through the process of becoming an ESOP, managing this downturn is, is gonna be critical and crucial for your business, really for all businesses as we start thinking about what this means for the future. And with that, today, I'm, I'm excited to have the privilege of interviewing managing director for commercial and specialty banking at Hillcrest Bank. David Stah is the lead of a team that is the relationship, relationship managers that work directly with companies throughout the state of Utah. He has, and his team has worked tirelessly through the PPP loan process that came out just a few weeks ago. Hillcrest Bank is a division of NBH Bank, a publicly traded bank holding company based in Denver, Colorado, with nearly $6 billion in total assets. Their focus is primarily on the lower middle market and that what they do is deliver a diverse, specially banking platform um with their client, for their clients. at Hillcrest Bank, their family of brands, they strive to provide solutions and value for the business owners that they represent. So with that, David, thanks for joining us today. I know you must be slammed right now with all of the activity with COVID. Yeah, thanks for having me. Look forward to sharing some insight as to what banks are dealing with. Great, thank you. So we know that right now it's been a tough time for businesses. With the recent CARE Act that has come out. I know that on our side of things within the CPA firm, we've been answering a lot of questions for the last few weeks. And really the motivation behind the PPP was to provide a way to protect the jobs of businesses. Um, of, of, of employees of businesses throughout the country. Um, the way that this works really is that they, the, the company files for the loan, um, if they use those proceeds of that loan for the PPP towards payroll costs, mortgage payments, rent, insurance, um, over the next 8 weeks, once they get the loan, then they can actually be forgiven of the loan. And in fact, it's a tax. Free event as well. Um, so with all of that, there's been a lot of activity and obviously, a lot of businesses are filing for that. David, what are the challenges that you guys are facing in terms of directing your clients, given the speed at which this program was put together and rolled out? Yeah, thanks, Bill. So the, I think the primary challenge that we faced was just deciphering the, the information and the speed in which it was coming out in the short amount of time in which it had to come out. If you think about the president. Signed this stimulus bill into law on the afternoon of March 27th, and that effectively gave the SBA and the Treasury six days to roll out a program on how they would deploy $350 billion of capital through the banking channel. And so throughout the balance of that week, the biggest challenge we faced was making sure that companies and clients had the ability to have the accurate accurate information based on on the latest updates we were getting. An example of that is is you know, the SBA published. Three different versions of the PPP application in a matter of 4 days. You know, one example we were working with when when the program went live on Friday the 3rd, I was talking to a client about getting their paperwork in order, and she said she had downloaded the latest version of the application. At 11:30 p.m. Thursday, the day before, and I asked her what version of the application did she have, and she told me, and I told her that was the wrong one, a new one had been updated. So within eight hours of her downloading the application to when we were trying to organize her paperwork, a new application to come out and so I think that was the biggest challenge that most banks faced in dealing with their clients and standing up their programs was that the information was just so fluid and there was just Short amount of time to get it going, you know, Hillcrest and our different banking center brands that we have, you know, we, we've built a strong SBA knowledgeable team and made some bets and created some views early on that helped us get that program. We have to say that we began accepting applications Friday, April 3rd around noon. That's fast. And you guys, I thought you guys did, um, I know you guys did a lot of things manually as well. As opposed to being able to rely on a lot of, uh, you know, programs that you would use typically. Is that true? That is, yeah, we, we did it all hands on deck, um. Across all of our associates, we recognize that the favorable impact that this has not just with our businesses but also in our communities and making sure we can keep people on payroll, keep them paid, and as such, we made sure that this was our primary focus of anyone at the bank that had the ability to do it. So yes, unfortunately since April 3rd, it has been a manual process. We have taxed. Every one of our associates, you know, they're all working long hours, late hours, but the results of it have been pretty astonishing over the two weeks we've been processing. That's awesome. And um so, so going into the application side and just kind of looking at the numbers, how many applications has Hillcrest Bank processed in the past two weeks? And can you comment on really the sheer numbers in terms of how the bank is keeping up with the applications in terms of the volume? Absolutely. So as of As of 11 of noon Mountain Standard Time, so 2 o'clock we accepted nearly 1800 applications across our six state bank footprint and the total volume of those applications were nearly 360 million of funding requests. And so like I said, I mean the the applications are being accepted from. All different parts of the bank. Many of our banking centers are closed, and so we've got associates inside those banking centers who are helping clients get their applications in. We've got our business banking relationship managers, our commercial banking relationship managers who are sourcing applications and getting the data into our underwriting system. And so it really is an all hands on deck to get the data in. And then we've got everybody in our loan support and back office working on. Putting together the underwriting templates, getting the credit officers to approve them, and then getting the SBA authorizations. We have 10 people that are licensed to get SBA authorizations here at the bank, and so they're going through that process and we're able to get them through fairly quickly on the front end. We're starting to see a little bit of bottleneck on the on the documentation side of things and getting the loans out. But that's just because of the sheer number of people. There's only a handful of people in in our loan operations that are actually qualified to do loan docs, and so while everyone can take information and put it into the system, only a handful of people can get it out. And so we're working through that process now in real time, but we've been getting hourly updates talking about where different, you know, where aggregate numbers of applications are. how many we have in SBA in the SBAQ for authorization and so forth and so on. So it's really been a, you know, 1000 plus associate team effort to get this thing stood up and executed on so we can get the money in the hands of the businesses. Yeah, I don't, I don't think there's been anything like it in history when I, I know that, you know, I know I was an old banker before, but nothing like I've never seen anything like this. Of those, I, I know that some people I talked to, they're they're wondering when their funding is coming in. Um, how many of you guys funded already at Hillcrest? So using the same same time stamp, we funded just over 300 loans totaling nearly $110 million through sort of the 1st 10 days of the program. So this is money in the hands of businesses that can now go and direct the funds to payroll and keeping people on and getting people rehired in our communities. We actually estimate we've been sort of doing a running tally on the application in terms of how many employees the companies have. We we estimate that through the funding that we've dispersed so far, we've affected nearly 28,000 jobs across the 303. funded so that really is a data point that I like to point to and use as a rallying cry that's why we're doing this to try to save and retain and keep those 28,000 people that we've affected so far, you know, on payroll and employed without being political at all, I'd say President Trump would be like that was tremendous. That's tremendous. Uh, anyway, so, but now I mean to save that many jobs, this is what it's all about and you're, and you're kind of a, a hero in that stand standpoint with everybody kind of going, rising to the challenge. Um, can you, can you explain, I know a lot of people are so confused about the actual, you know, you went to some of the kind of the, the details of getting it from here to here. Can you go into a little more detail in terms of the process from very beginning to very end and at least in how Hillcrest is processing the PPP loans? Sure, yeah, I think every bank is kind of looked at it differently. I think the largest banks in the country have kind of stood up an online portal and have directed people to that portal. I know the second tier banks, if you will, from the from the national standpoint have invited people to apply, so there's there's been a varying degree of sort of a way to engage with your bank relative to getting information in the system out here in Utah we actually have a A plethora of fintech companies that have partnered with industrial banks and sort of non-geographical sort of bordering banks to provide the funding platform and the fintechs have stood up an application platform that moves things through, but as I might have alluded to earlier, everything we've been doing is manual and so so what we've been doing is, you know, from start to finish, you know, the process is somebody takes the application and the relevant data. And we validate that we have a complete package. The SBA was, you know, one of the moving targets all of last week was what is a complete package, but I think we kind of got to that point, even midstream when the SBA said your payroll data would be calculated on all of 2019's payroll data and then decided that they were going to move it to a trailing 12 months of payroll data or something in between. And so we've been working with our clients really one on one to try to make sure that we have. The most accurate data that we can validate because the last thing we want to do is potentially negatively affect the forgiveness piece on the backside and so and so as we go through that data we then input everything into our underwriting system, spend a day or two in there. As it works its way through sort of the documentation pieces of it and then once we get it out of there, like I said, 1 to 2 days at most, it sits in a queue and waits for one of those 10 licensed people to go ahead and authorize the SBA number from the ETran system, which is a system that which is the name of the system that banks use to get the SBA authorizations. And then from there it goes to our doc prep people, you know, spends a day or two there. We've been using DocuSign for all of these, and so the document creation and dissemination has been shortened dramatically and then once the client signs, the banker signs and generally on the same day that we get the loan. Back and so that's sort of a little more detail into the end to end process as we've been seeing it and and as our loan volume has continued to increase, I think we've seen a little bit of stretching in terms of the separate stages, but generally when we've been working with our clients to keep them informed, we've been kind of thinking about them in those stages. I've taken your application. It's been decisions. It's got an SBA number, which is really what every business wants because that keeps your place in line and then it's in doc prep. Here are the documents and we get funding. And so we kind of look at it from that five-step process and and one of the things that came out too is that the SBA has put um I put a 10 day closing window on when you get your authorization to when the funds have to be out the door. And so that was one of the after April 3rd changes that we learned as well so there is a little, you know, there's a time sensitivity around when you get your authorization. So, so, could a client ask for their SBA number just to see where they are in the process, or is that um is that something you would tell people? You know, I can't actually answer that because no one's asked me for the SBA. Yeah, I don't think anybody knows that this is why it's interesting, it's an interesting podcast because I think nobody really understands that process. They're like, we go through that process of giving them like we did the calculator to help them calculate what their payroll was and make sure they have the right documentation, but They submit it into the portals, which is a lot of the, the banks, and then they're in, they're waiting, you know, and then I'm sure they're following up with their banker, but I think that would be interesting to see if that was available. They maybe at least know that they have an SBA number and they're they're kind of, it's the funding is coming, so and we've been advising our clients when they uh we get a notice that the SBA has approved or accepted the application and so even though we don't get a number in there. I believe that our clients and say, hey, just so you know, you've got your SBA authorization. You're in line now we'll just work to get it closed. Yeah and that and that just is helping them because I mean I'm sure they're they're really needing to know as soon as they can to make decisions in their business. Um, one thing I would offer to the listeners, uh, if you're working with a bank, uh, one of the things is, you know, we've talked with nearly 150 business owners throughout Utah over the last 10 or so days relative to this program. And one of the common themes that I keep hearing is that, you know, is what you mentioned that there's a lack of transparency around where I'm at in the process. And so what I, what I've tried to help clients, business owners think about is, you know, Have you, because these banks that are using the portals, have you just provided basic information in that portal, or have you actually uploaded your calculator, your PPP application, your your 940s, your 941s, your payroll supporting data? Have you actually uploaded those because those are two what we saw early on in the process was that banks were taking, using air quotes, taking information from clients, but they weren't taking the relevant information. And so what I started to do was use the. versus you've applied versus you're being processed. And so, you know, no banks can take your information, but they can't formally process your application until the supporting documents have been uploaded. And so one of the things that I would offer up is if you're unsure where you stand, think about what you've done to this process, and if you've not uploaded the relevant information to your bank, you need to press them to understand where you're at. And have them give you answers because if they've just got your basic information, they're they're not doing anything with your application. That's really good information I think and that's where I think there's a lot of confusion and, and some people are in everybody's different, right? Everybody's saying some things that are different and there's some things that as a banker you can say to your client and you're kind of under the, uh, of course, the way the bank is telling you to do that. So I think that's great. So if you're listening to that, definitely ask those questions for your banker and Um, one of the things I wanted to kind of jump to a little bit is just the recent, you know, as we look at smaller clients in the PPP, but let's, let's jump to the whole Main Street loan and um, can you kind of explain, you know, that loan cause it's, it's a different program, um, but designed for some of the same purposes as the PPP but just for bigger companies. Yeah, so, so a couple of things that I don't know if they were missed or deliberately left out of the PPP loan efforts was, you know, companies beyond 500 employees, um, private equity owned companies, things of that nature, you know, really, really didn't become eligible to, you know, under the PPP loan. And so what the what the Fed did in response to that last week was stood up the mainstream lending program which was really probably designed more for what I would define as true middle market corporate banking style clients and you know companies you know not exceeding 2.5 billion in revenue, you know, generally you know they can be under 500 employees, but you know, generally not more than 10,000 employees somewhere in between. And they stood up an effort in partnership with banks that act very similar to their syndication. Whereas instead of providing the banks an SBA guarantee, the Federal Reserve split up a special purpose vehicle SPV for the participation in the mainstream lending programs. And so the Fed is going to purchase 95% effectively leaving the banks exposed 5% on whatever loan amounts they do under this program and it really. Again, it's intended to sort of fill that upper end of the gap that may have been missed by the PPP efforts. And so just broadly, there's a couple of different programs under this. Generally, the terms are roughly 4 years amortization of principal and interest will be deferred for the first year. The loans will be unsecured and will allow for prepayment without penalty. Unlike the PPP loans for small businesses, loans provided under the Main Street lending program are not eligible for loan forgiveness. So this really is a loan. And since it is, it is traditionally a traditional loan, you know, you've got a little bit more flexibility around the use of funds versus the PPP restrictions, whereas 75% or more needs to be used for payroll. You can use some for utilities, some for rent. A or interest on mortgages, but the majority of it needs to be used for payroll. And of all the of all the conversations we had with business owners, a lot of times we spent a good portion of that just really understanding what the business owners need was and whether or not they could meet that 75% or more criteria. Because if they couldn't, then they needed to find an alternative and we suggested for the smaller businesses, the EIDL loan, which was a little bit probably more flexible on the expense side because it is a loan, and that's essentially what this main street lending facility is very similar to that, just larger numbers. There's two ways to disperse the funds. You can either do it as a new loan. or you can do it as as an upsizing to an existing facility, and each one of those has very specific parameters to whether or not you know how you fund those and so we as a bank are still trying to formulate a view around, you know, are we going to deploy this to clients only are we going to deploy open it up a little more broadly to try to help. Well beyond just, you know, beyond clients and and things like that, and it's very, it's very prescriptive around it seems to be geared more around a leverage number and so if you think about what you can qualify for, there's you know, there's somewhere between 4.5 to 6 times senior leverage or total leverage based on the prior years does kind of. One of the main formula criteria, you know, some restrictions on how the funds are used. You can't can't retire existing debt, you can't do stock buybacks. There's some compensation restrictions that I don't want to go too far into based on your compensation levels, your overall payroll, and you know, you can, you can only participate in one of the programs. Now you can get a main street lending program and a PPP loan. Um, but you cannot participate in more than one of the different mainstream lending programs like I said, the upsizing to the existing revolver or a total new facility. And so you know again hot off the presses last Thursday and that's a little bit of detail. We have around the program so far and are trying to find ways that we're exploring ways to deploy, you know, continue to help our clients through this program. I think that's very helpful. One thing I wanted to finish with is just the um I know one of the issues that came up was that they were kind of putting their clients. Are you seeing a lot of non-clients come to you for the, for these loan facilities? Ah yeah, so we are seeing a lot of businesses period. Now we're in, so our expansion, you know, in Utah is an expansion market for the bank, and so we didn't have a lot of clients to start with when this program launched. We've been open effectively a year here in Utah and so many of the 150 that I mentioned were non-bank clients and so, so, so yeah, I think every bank in in. I'm happy to get into the specifics as to maybe some of the whys, but I think broadly every bank just did it because there were some broad-based risks. To these banks relative to the loan forgiveness piece of it, and banks in general wanted to make sure that they were that they could you know help these clients on the debt forgiveness side and there were a lot of assurances that needed to be made between all parties that I don't know really came together you know. They launched this in such a short period of time. For example, even though we've funded 303 loans so far to date under this program, we're still unclear on sort of the mechanics and how we're going to help these companies go through the process of forgiving these loans. I still have not seen the mechanics on how that will work in the guidance from the SBA and the Treasury on that. So, so yeah, I think just because of a lot of the ambiguity, so many banks, every bank really just said, hey, we're, we're we're going to focus on our clients first and foremost and make sure that they get the access to the capital. We have processed some non-bank clients, we have processed some affiliate businesses. Of our clients that didn't bank with us before, so but we've been, you know, much like everyone else has been primarily processing for our clients, but we've not excluded nonbanks. OK, I think that's, you know, that's helpful because I think sometimes, you know, there's there's questions about where they can go if their bank is not going to be able to do the PPP. So I think that's very helpful. I know for us, we're in the next stage of us we're doing a webinar, I think Friday on the interpretation of the tax. Lawre relative to the forgiveness section. So there's still, you know, gonna be ongoing questions as we start to, to work through the details of, of what happens next with, with these programs. But, um, so, but initially going through that for the last 20 minutes has been just really helpful, David. Um I really appreciate your time. So, so if you're in Utah looking for a great bank, David Stah with Hillcrest Bank, and I appreciate all the time you're you're making for us today and uh have, have a great day, David. And as we close out, I just want to remind You all that to, um, if you, if you like the podcast, subscribe to it and share it with a friend, um, and we will see you next time. Thank you very much.