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Clark Street Capital New York Times Feature-8/6/20

Small-Business Owners Are Wary as Relief Program Ends

The Paycheck Protection Program provided respite for hard-hit small businesses, but it is ending soon. With no word on further government help, owners worry about their fate.

In early April, three weeks after Connecticut issued shutdown orders, Ken Bodenstein borrowed $148,000 from the federal government to help cover payroll expenses at the Westport day care center he runs with his wife, Kristen.

The small-business loan, along with the Bodensteins’ own cash reserves, allowed the couple to continue to pay their 21 workers for nearly three months. But by June 5, the day the money ran out, only 11 of the 75 children who attended the day care before the pandemic had returned, forcing the Bodensteins to furlough or lay off all but nine employees.

“We were just about to hit break-even, and then everything collapsed,” Mr. Bodenstein said. The Goddard School of Westport had been open less than a year when the pandemic hit.

The federal government’s Paycheck Protection Program was a hastily created and chaotically executed effort to preserve jobs through what lawmakers initially believed would be a sharp but short disruption. Since April, it has injected $523 billion into the economy, allowing small-business owners to stay afloat and keep employees on payrolls.

The numbers are already dire.

On Thursday, the government reported that nearly 1.2 million Americans filed for state unemployment benefits last week — the 20th straight week that new jobless claims have topped one million, although it was the lowest weekly total since March. Economists estimate that 30 million Americans are unemployed. By the time the economy gets back on track, which could take months if not years, entire industries — especially restaurants, bars, hotels, movie theaters, concert venues, gyms and other fields dominated by small businesses — could be decimated, shrinking the pool of available jobs.

So far, there is little agreement in Washington about how to continue to help millions of floundering businesses. Lawmakers are considering extending the P.P.P. in some form. Senate Republicans have proposed letting companies whose sales have fallen by 35 percent or more get a second loan. Other ideas kicking around in Congress include expanding existing low-interest loan programs offered by the Small Business Administration and increasing tax credits for companies that retain workers. Lobbyists are also pleading for bailouts for specific hard-hit industries.

“There’s absolutely a need for more help in some industries,” said Carson Lappetito, president of Sunwest Bank, a regional lender based in Irvine, Calif., that has made more than 2,000 P.P.P. loans. “In the hotel and restaurant and hospitality sectors, those areas have been completely hammered.”

Sunwest, like many other banks that were the main conduits through which P.P.P. money flowed to small-business owners, stopped making loans weeks ago. Mr. Lappetito said demand had fallen off and the bank wanted to focus on other business areas. On Monday, when the S.B.A. begins accepting applications from banks to have their small-business loans forgiven, the complexities of the process are likely to further bedevil lenders and borrowers. Sunwest has around 100 forgiveness applications from borrowers that it’s currently reviewing.

Small businesses employ nearly half of America’s nongovernment workers, and the paycheck program preserved at least 1.4 million jobs through early June, a recent economic analysis concluded. More than five million companies received loans, averaging $102,000 each.

There was a frenzied rush when the program began in April: The fund’s initial $342 billion ran out in just 13 days, stranding hundreds of thousands of applicants and prompting Congress to add another $310 billion. A chunk of it went fast, but months later, more than $125 billion remains unspent.

Lenders said demand slowed because nearly every eligible business that wanted a loan was, in the end, able to get one. But as the economic downturn became prolonged, strict rules about how the cash could be used also made P.P.P. loans less attractive for some business owners. For a loan to be forgiven, most of the money had to be used to pay workers, rather than on other expenses like buying protective equipment or renovating spaces to accommodate social-distancing rules — which became more important for businesses trying to adapt to the new reality.

Jon Winick, chief executive of Clark Street Capital, a firm that advises lenders, called the program a “successful bipartisan effort.” It was created in a hurry based on expectations that the economic recovery would be “V-shaped” — with a sharp dip, followed by a sharp rebound within a brief period — that eventually proved wrong, he said. However, the program “did provide a bridge for thousands of businesses to stay in the game long enough to make it to the other side,” Mr. Winick said.

A bridge was exactly what the relief loan provided for Bob Starekow, the co-owner of two restaurants in Frisco, Colo., a resort town with heavy winter and summer tourism. The P.P.P. loan he got in May allowed him to keep paying his 28 workers while his restaurants, the Silverheels Bar & Grill and Kemosabe Sushi, were closed.

They reopened in June, and business is running profitably, although at a smaller scale, Mr. Starekow said. To cut costs, he slashed his menu. His restaurants could seat about 200 people indoors, but are now mainly using their 90 outdoor seats. Mr. Starekow has not had to lay anyone off, but he has not hired the 20 or so additional people he normally would to handle the summer demand. He worries about what cooler weather will mean for foot traffic.

“I’m not concerned about up or down with revenue,” Mr. Starekow said. “I’m concerned about broke or not broke.”

Mr. Starekow thinks he can make it without more government aid, but others said they would welcome another P.P.P. loan if it were available. At A&J Transportation, a trucking company in Ada, Okla., sales are down sharply from last year, and the company is struggling to stay in the black.

A&J got a $699,000 loan in April and used it to keep paying more than 70 drivers through early June. But after the money ran out, around 30 drivers quit. A&J, which used to work exclusively on oil fields, shifted to over-the-road trucking after the pandemic shut down the state’s oil production. Many of its drivers — who had mostly been paid to stay home while the company hunted for new contracts — did not want to do long-haul work, said Dana Sanford, the company’s office manager.

Now, the company is desperate for workers. “Any driver that wants a job, we’ll give them one,” Ms. Sanford said. If A&J got another loan, she said, the company would use it to meet payroll costs and free up money for other expenses.

Mr. Bodenstein also said a second round of funding would be a godsend for his day care center. For the two months it was closed, his school had zero revenue, but his landlord refused to defer or discount the space’s $30,000 monthly rent. Utilities, insurance and other expenses add $10,000 more to his monthly overhead. A $150,000 disaster loan from the S.B.A. helped him catch up on bills and stave off the eviction notice his landlord sent after he fell two months’ behind, but he’s still trying to dig out from the crater left by the shutdown.

Mr. Bodenstein also got caught by a midstream change in the P.P.P. rules, one of many that have frustrated both borrowers and lenders. Congress initially required that borrowers seeking to have their loans forgiven spend all of the money within eight weeks. So Mr. Bodenstein did what Congress intended: He paid all of his workers to stay home while his business was shut, and kept them off the unemployment rolls.

But Congress later loosened those rules, allowing borrowers to instead take months to bring back their employees and use their loan funds. By the time that change happened in early June, Mr. Bodenstein had already spent his money.

“I felt like it was unfair,” Mr. Bodenstein said. “Those of us who did the right thing and followed the spirit of the program were penalized.”

Jon Winick CEO in 7/24/20 American Banker

Banks sharpen focus on cost-cutting as revenue outlook dims

By Jim Dobbs July 24, 2020, 11:24 a.m. EDT

Banks large and small, resigned to the uncertainty of a coronavirus pandemic that is dimming
hopes for a 2020 economic recovery, are sharpening their collective focus on expenses, looking to
pare down branch networks, cut back consultant fees and reduce costs wherever they can to
offset hits to revenue and the potential for mounting credit losses.

Among the biggest banks, Wells Fargo said this month that it plans to carve out roughly $10
billion from annual costs — nearly a fifth of its expense base — with the effort expected to
involve cutting thousands of jobs, including layers of management, once the worst of the public
health crisis passes. The plan will span years, executives at the $1.9 trillion-asset company said,
though reviews are underway to assess redundant facilities and technology platforms, with jobs
cuts to follow.

“We’re trying to be very careful about making it clear that we are going forward and actively
going to start to take actions to reduce expenses,” President and CEO Charlie Scharf said on the
San Francisco company’s earnings call July 14. “We have layers at the company” that make it
“very, very inefficient. … We have duplicative platforms, duplicative processes across the

The $54 billion-asset Synovus Financial in Columbus, Ga., said that, while pandemic-related costs
such as bonuses to front-line staffers nudged its costs up modestly in the second quarter, it
expects expenses to fall in the second half of the year as it scales back spending on consultants
and other third-party partners. Like many other banks, it also continues to close branches to rein
in brick-and-mortar costs. The company closed six branches in the first half of 2020 and intends
to close another seven before the end of this year.

Executives said they had launched the cost-control effort before the pandemic. Now cutting
costs is more urgent.

“It’s been 130 days since the declaration of the national emergency on March 13. And the
consequences continue to weigh heavily on individuals, families, businesses, certainly our
economy overall,” Synovus Chairman and CEO Kessel Stelling Jr. said on the company’s July 21
earnings call. “No one knows when normal will return or what it will look like when it finally does.”

The virus continues to spread rapidly over swaths of the country, forcing some local governments
to pause economic reopening plans or even impose new restrictions that could draw out the recession caused by the pandemic. While improved from the spring, unemployment remains
historically high and bankers, based on earning call commentary, are bracing for a prolonged
slowdown that hinder loan growth and interest income this year.

“Anytime it gets difficult to generate revenue — and this could be very difficult — you have to
take a closer look at the expense side,” said Jon Winick, CEO of Clark Street Capital in Chicago.
“It’s not a pretty picture for employment in the banking industry.”

Winick said the social distancing measures necessitated by the pandemic have accelerated an
enduring trend toward digital banking and away from in-person transactions at branches. As
such, he said, he expects branch closings to lead the cost-cutting charge over the rest of 2020
and beyond.

He also said that, with large shares of their staffs working remotely for the first time, banks have
learned to manage a dispersed workforce and are now beginning to look at scaling back-office
space to cut costs.

The $504 billion-asset Truist Financial in Charlotte, N.C., for example, has formed an internal task
force to review its corporate real estate with a goal of eliminating office space it no longer needs.

In addition to fewer branches, increased telecommuting could take hold after this crisis, providing
opportunities to save not just on space but also utilities, furniture and parking.

Already, banks are announcing new plans to close more physical locations.

Five Star Bank in Warsaw, N.Y., is planning to shrink its workforce by 6% and its branch network
by 10% as more customers bank remotely. The $4 billion-asset bank unit of Financial Institutions
said it plans to close six of its 53 branches and consolidate those operations into five existing

Simmons First National in Pine Bluff, Ark., said in July it is planning to shutter 23 branches and a
loan production office in the fourth quarter after closing 11 branches in June. Combined, the
closings should save the $21.9 billion-asset company more than $9 million a year.

Great Southern Bancorp in Springfield, Mo., said during its earnings call this month that it hired a
consultant to review the $5.6 billion-asset company’s branch network. “We fully understand …
that our industry is evolving, and the traditional banking center is a part of that evolution,” Kelly
Polonus, Great Southern’s marketing director, said on the call.

Several other banking companies disclosed plans to close branches before reporting secondquarter
results, including CB Financial Services in Carmichaels, Pa., Mercantile Bank in Grand
Rapids, Mich., and Nicolet Bankshares in Green Bay, Wis.

The $19.7 billion-asset Atlantic Union Bancshares in Richmond, Va., said it plans to close 14
branches, or about a tenth of its locations, in mid-September. It also intends to reduce its
headcount by about 6% from its March staffing levels, or roughly 125 positions. The latter moves
follow a hiring freeze put in place in March.

“I’ve told our team that the current normal is not the new normal. However, we think the next
normal post-COVID-19 will be different still, and we must adjust now for that coming reality and
not wait for it to arrive,” Atlantic Union CEO John Asbury said during a Thursday earnings call.

When a recovery eventually takes hold and buyers can better assess the credit quality of sellers,
more banks are likely to pursue mergers and acquisitions to further cut costs.

The $83 billion-asset First Horizon National in Memphis, Tenn., for one, said it has no immediate
M&A plans, but Chairman and CEO Bryan Jordan said he expects to see more banks weigh deals similar to First Horizon’s just-completed merger with Iberiabank to improve efficiency and reduce
costs. The First Horizon-Iberia deal is expected to yield $170 million in annual expense savings —
nearly a tenth of the companies’ pre-merger operating costs.

“The efficiencies you get with scale are only going to be more important,” Jordan said in an

CSC American Banker Feature 5/22/20

Pandemic prompts banks flush with capital to raise more

By Jim Dobbs May 22, 2020, 12:02 p.m. EDT

For all the talk about the banking industry being well capitalized, a number of banks aren’t taking any chances during the corona virus crisis.

Several dozen banks have raised capital since COVID-19 was declared a global pandemic. Some are raising capital to provide an extra buffer for credit losses. Others are stocking up now for
potential acquisition and lending opportunities.

More banks are expected to turn to investors in coming months.

Ocean First Financial in Toms River, N.J., has raised capital twice in the past month, issuing subordinated debt on April 29 and preferred stock two days later. While there is a defensive
reason, the $10.5 billion-asset company also wants to be ready to expand when the crisis passes.

“Typically, on the back side of any period of stress, there’s strong demand for credit,” said Christopher Maher, OceanFirst’s chairman and CEO.

“Banks have an opportunity to play important roles in recoveries,” Maher added. “I do think there will be acquisition opportunities again going into 2021. The additional capital opens up our
strategic options.”

Banks in general are finding receptive investors and reasonable pricing. Low interest rates have also provided an opportunity to affordably raise capital by issuing senior and subordinated debt.
That may not always be the case, industry experts said.

“It’s times like this that banks are reminded it can be really smart to raise capital before you need it,” said Jacob Thompson, a managing director of investment banking at SAMCO Capital

“The markets are open now, but you really don’t know when that door will slam shut, given all the uncertainty,” Thompson added. “I can tell you more banks are looking at this, and regulators,
generally, are of the mind that the more capital the better.”

Capital hasn’t been a problem for banks in recent years.

The total risk-based capital ratio for all banks was 14.63% on Dec. 31, according to the Federal Deposit Insurance Corp. That was an improvement from 12.77% at the end of 2007, when banks
were heading toward the financial crisis.

If the steep and sudden downturn drags on for several quarters, capital needs will mount across the industry — with the possible exception of banks that are extremely well capitalized, said Jon
Winick, CEO of Clark Street Capital.

“We may have a long way to go,” Winick said. “There’s a lot more that we don’t know than we do about this thing.”

A survey of 104 bankers conducted by D.A. Davidson as part of its virtual conference in early May found that nearly one in five expect to raise capital over the near term.

“That’s significant,” said Russell Gunther, an analyst at D.A. Davidson. “I think the real number could even be higher than that. I suspect some bankers are not quite ready to check the box on
raising capital but will get there before long.”

An overwhelming majority of bankers who participated in the conference expect steep loan-loss rates and a protracted economic slump that likely will extend through much of this year — or

Against that backdrop, even companies with solid capital levels are bound to need more, or would stand to benefit from having more on hand when conditions improve.

“A lot of banks are focused internally now — on their balance sheets and where there could be losses,” Gunther said. “I think that some really strong, very well-capitalized banks could take
advantage of the lack of competition. It could be an incredible time to take market share.”

Hilltop Holdings in Dallas raised about $200 million in subordinated debt earlier this year. Beforepricing the offering, the $15.7 billion-asset company intends to be among the banks benefiting
from an eventual recovery, Hilltop President and CEO Jeremy Ford said.

“I think first and foremost, we’re going to continue to be patient and work on our own businesses,” Ford said during the company’s earnings call. “When the environment presents itself, we’re going to be very aggressive.”

Larger banks also are boosting capital levels, including Citizens Financial Group, Fifth Third Bancorp and Regions Financial.

The $178 billion-asset Citizens and its bank each priced a $750 million offering of senior debt in late April.

“Maintaining a strong capital and liquidity position is of paramount importance in managing through this stress period,” Bruce Van Saun, Citizens’ chairman and CEO, said at a recent

Citizens also wants to forge ahead with growth initiatives, including investments in digital platforms and payments offerings.

“Our philosophy here at Citizens is to keep making those investments, not to pause, but look to drive top-line growth and come out of this period stronger relative to our peers,” Van Saun said.

American Banker 5/11/20 Feature

Lenders worry they could be stuck with billions in PPP loans

By Jim Dobbs May 11, 2020, 3:12 p.m. EDT

Bankers are becoming increasingly concerned that they will end up holding billions of dollars of Paycheck Protection Program loans on their books.

Lenders have made roughly $520 billion in PPP loans since the program’s debut in early April. Under the coronavirus stimulus law that created the program, loans should be forgiven if
borrowers use the funds to cover payroll and certain other expenses.

The Small Business Administration and Treasury Department, the agencies running the program, have yet to provide complete guidance on forgiveness as mandated by the law. One key
yardstick in the program — a requirement that borrowers use 75% of the funds for payroll —wasn’t specified in the legislation.

Lenders are worried that many borrowers will fall short of the standards necessary for forgiveness, leaving them with two-year loans with nominal 1% interest rates — along with jaded and irate customers.

“I am fearful that the original intent of Congress is being lost and small businesses … are confused and no longer willing or able to comply with the program’s requirements,” said Clem Rosenberger, CEO of the $1.4 billion-asset NexTier Bank in Kittanning, Pa., which has originated about $100 million PPP loans.

“Forgiveness must be as simplified and assured as possible,” Rosenberger added. Some industry advocates are pressing Congress to step in after the SBA’s inspector general
warned in a Friday report that “tens of thousands of borrowers” could fail to qualify for full forgiveness because of the payroll threshold.

While banks are in line to bring in origination fees ranging from 1% to 5% of a loan’s value, few lenders thought they would have to service significant portions of the loans over the next 24 months. They may also have to shoulder the reputation risk as some borrowers realize they must repay some of their loans.

Valley National Bancorp said in its recent quarterly filing with the Securities and Exchange Commission that 15% to 20% of the loans it had made under the program may not be forgiven.
The $39 billion-asset company had 5,000 loans, totaling $1.6 billion, approved during the initial PPP round.

“We’re definitely concerned about this,” said Chris Nichols, chief strategy officer at the $18.6 billion-asset CenterState Bank in Winter Haven, Fla., which has originated about $1.3 billion in
Paycheck Protection loans.

“We know it’s going to be hard for a lot of our small businesses to hire back all their people and qualify” for forgiveness, Nichols added.

“Everyone just dove into this, assuming the forgiveness,” said Jon Winick, CEO of the bank consultant Clark Street Capital in Chicago. “It was good for customers and the banks got the
upfront fees. But there were not a lot of serious discussions about whether these loans actually made sense under any other circumstances.”

Efforts to reach the SBA and Treasury were not immediately successful.

Treasury Secretary Steven Mnuchin told CNBC on Monday that the payroll threshold requires a legislative fix, adding that he would work with Congress if there was bipartisan support.

The Independent Community Bankers of America, the Consumer Bankers Association and the American Bankers Association are calling on the SBA and Treasury to lower hurdles for

The ICBA is also pushing its members to directly lobby Congress to intervene. They want lawmakers to lower the payroll threshold to 50%, require the SBA to create a forgiveness
calculator and exempt small-dollar loans from detailed review, among other things.

“Why torment these small businesses just as they’re coming out of these shutdowns and trying to get people back to work?” said Paul Merski, the ICBA’s head of congressional relations and
strategy. “We just need some realistic adjustments and some clarity.”

Taking on the task of servicing and collecting on scores of low-rate loans would come at a time when banks are already grappling with national unemployment that hit 14.7% in April, broader
margin pressure and higher credit costs tied to the coronavirus pandemic.

The Federal Reserve noted in a recent report that banks’ profits and capital levels fell in the first quarter, with their overall financial health also declining.

“Current market valuations are already incorporating another 20 basis points of net interest margin contraction over the next year,” Marty Mosby, an analyst at Vining Sparks, wrote in a
recent note to clients.

“Credit is going to be a big issue,” Winick said. “And I don’t think anybody knows how severe this is going to get. What we know is that we still have a long way to go to get past this thing.”

There is also a growing belief that small businesses that haven’t applied for PPP loans have cooled on the program. While the initial $349 billion in funding ran out in 13 days, the $320 billion
authorized for the second round is only 60% depleted after two weeks. While he said the slowdown is likely because lenders have met demand, Nichols said “there are some borrowers who have rethought their positions” on PPP given their uncertainty on forgiveness.

IMN Webinar Recap

Special Assets Webcast

Clark Street Capital participated in an outstanding webcast last week on Special Assets, organized by IMN.    Attached are the slides from the initial presentation, and you can watch the broadcast by clicking here.

We were most interested in the poll questions, which show some disconnect between the participants view of the economy and their own portfolios.   This falls into the “I love my Congresswoman but hate Congress” dichotomy.

In response to the following question, “What Shape do you Expect the Recovery Curve to Be,” only 3% of respondents answered a “V” shape recovery, while a “W” shape was the highest at 37%.    So the attendees were generally pessimistic on the state of the economy.

The vast majority see only a modest impact on the residential real estate prices.    We asked whether residential real estate prices will:

Increase (5-10%)   7.14%
Stay the Same 17.14%
Decrease (5-10%) 55.71%
Plummet (>10%) 19.52%

Only 20% of the respondents expect more than a 10% drop in prices, and everyone else sees a change under 10%. We then asked the respondents what percentage of COVID-19 modifications will become TDRs.

< 10%34.29%
 > 30% 7.14%

Again, this is a modest projection.    The short answer though is no one really knows, as no one knows what a borrower looks like after the economy re-opens.   Some will see a permanent loss of customers, others will bounce back as if nothing happened.

All of the panelists did a great job and we received great feedback from the attendants.    Many said this was the best webinar they’ve attended on the topic of distressed real estate, which is likely to become a bigger topic in the months ahead.

CEO Jon Winick in American Banker-4/9/20

What does the $600B middlemarket rescue plan mean for banks?

By Jon Prior, Allissa Kline April 09, 2020, 9:00 p.m. EDT

Bankers spent much of Thursday trying to unravel details of the central bank’s new loan-purchase program aimed at helping middle-market businesses survive the economic shock from the coronavirus pandemic.

As part of its broader effort to step up economic relief, the Federal Reserve pledged to facilitate $600 billion in loans to midsize businesses under the Main Street Lending Program. The move spotlighted a sector of the economy that has gotten less attention than small businesses’ struggles to obtain much-needed aid.

“These midsize businesses are having the same issues that the small businesses are having because of the government-mandated shutdowns,” said John Corbett, CEO of the $17.1 billion-asset CenterState Bank in Winter Haven, Fla. “Their revenues have fallen off a cliff.”

Corbett, who attended a call with other executives hosted by the Federal Reserve Bank of Atlanta while the program was under development, said banks with assets between $10 billion and $250 billion were likely to be the main participants in the Main Street program.

Specifically, the Fed is creating two special purpose vehicles funded by an investment from the Treasury Department under the authority of the Coronavirus Aid, Relief, and Economic Security Act that was enacted in March. Through these facilities, the Fed will guarantee 95% of expanded loans or entirely new loans to midsize businesses; borrowers won’t have to start paying them back for one year.

Existing loans can be increased by up to $150 million in some cases under the Fed’s “Main Street Expanded Loan Facility.” Fresh financing provided under the “Main Street New Loan Facility” will be capped at $25 million. Limits would be adjusted so that no business taking out these loans would exceed a total outstanding debt of four times earnings before interest, tax, depreciation and amortization, according to the Fed’s term sheets.

Businesses that have up to 10,000 employees or as much $2.5 billion in 2019 annual revenues may qualify. The loans carry up to four-year terms .

Fed officials told reporters Thursday they expect demand will come in under what they are offering and that they believe their Main Street lending facilities are appropriately sized.

Corbett at CenterState said banks did not anticipate the kind of “stampede” from middle-market businesses that they have seen from smaller ones partly because some of these bigger businesses want to avoid restrictions on stock dividends, executive compensation or other strings attached by the Fed.

“The real question is, are borrowers going to be willing to have the government involved in those kinds capital allocation and compensation issues?” Corbett said.

Jon Winick, CEO of Clark Street Capital, a bank advisory firm in Chicago that specializes in loan sales, loan due diligence and valuation and specialty asset management, said he has “so many questions” about the program, especially around the idea that the Fed is going to take on credit risk. Fed officials generally avoid that but “now they’re setting up a program with substantial credit risk,” Winick said. “We are not clear yet what the intent is for these loans and their creditworthiness. The term sheet mentions 2019 EBITDA, but is it the intent here to make loans that don’t have current cash flow?”

“If that’s the case, then these are essentially projection loans,” he said.

Several banks contacted for this story either did not respond to requests for comment or said they are still trying to figure out what it all means.

Tom Iadanza, chief banking officer at Valley National Bancorp in Wayne, N.J., said the $37.4 billionasset bank “continues to review all federal and state programs.”

The bank, which has already been involved with the lending program for smaller businesses, will keep its local business leaders and consumers informed of “other federal and state programs and assess [those programs] on their merits” so that businesses of all sizes get the relief they need, Iadanza said in an email.

The American Bankers Association and the New York Bankers Association both said they, too, are trying to get their arms around the Fed’s announcements. Taken together with expanded efforts to boost financing for municipalities, new securities under the Term Asset-Backed Securities Loan Facility and the Small Business Administration’s Paycheck Protection Program, the central bank is providing up to $2.3 trillion in financing. Barclays Capital researchers said in a note Thursday that the Fed has turned its support of the financial markets to “11.”

ABA President and CEO Rob Nichols said in a statement that the Fed’s move Thursday was “unprecedented” and that he had “no doubt” banks would step up to play a critical role in the program for midsize businesses.

Winick said he expects the Fed will have to provide more clarity to banks in coming days.

“The No. 1 question here for bankers is under what circumstances is my participation in jeopardy?” Winick said. “What do I have to do as a lender to make absolutely certain that I don’t have any recourse on the 95% originated and sold?”

The launch of the program for more businesses comes as the prospects of a quick recovery from the shutdown are dimming. Meanwhile, the U.S. has seen 10% of workers lose their jobs in the last three weeks, according to Labor Department data released Thursday.

A survey of corporate treasurers conducted for the week ending April 8 by the Treasury Coalition, an industry group, showed that businesses do not expect to get back to normal financially for another eight months after suggesting the week before they could recover in seven months.

“Still, respondents see a light at the end of the tunnel as central bank efforts are viewed positively and as health issues associated with COVID-19 are expected to begin to improve in the coming months,” said Michele Marvin, Global vice president of GTreasury, a technology company that is involved with the coalition.

There were 427,460 confirmed and presumptive COVID-19 cases in the U.S. as of Thursday and 14,696 deaths linked to the disease, according to the Centers for Disease Control and Prevention. However, there are signs the rate of the virus’ spread is flattening in hard-hit areas like New York.

Joseph Lynyak III, a partner at the law firm Dorsey & Whitney, said in a statement that the Fed has begun to “look down the road” with the announcement of these programs to jump-start these businesses.

“The intention is twofold: First, the facilities will provide necessary liquidity to banks to extend the credit,” Lynyak said. “More importantly, however, the facilities will effectively function as working capital loans for businesses as the nation emerges from the COVID-19 emergency.”

Introducing CSC SAM-3/30/20

Many financial institutions need resources to manage the surge of loan workouts unleashed by the COVID-19 pandemic. CSC Specialty Asset Management (“SAM”) provides a contract workout solution for lenders to prudently manage elevated problem assets.   Our team of experienced professionals act as a seamless and integrated outsourced workout solution.  

A subsidiary of Clark Street Capital, CSC Specialty Asset Management is led by   James McCartney, who brings decades of management of complex portfolios.   

Analytical and results-driven, Jim has a demonstrated track record of achievement in loan workouts, real estate debt, commercial and industrial (C&I) financing for both banks and finance companies.

Before joining Clark Street, Jim served in a variety of senior roles with Urban Partnership Bank in Chicago, a community development financial institution capitalized by a variety of Wall Street and regional institutions to acquire the assets of ShoreBank, subject to an FDIC loss share agreement on a highly distressed and complex $1.4 billion portfolio. 

American Banker Feature-11/20/19

Three takeaways from regulators’ approval of the BB&T-SunTrust merger

By Jim Dobbs
Published November 20 2019, 4∶38pm EST

The moment BB&T and SunTrust announced their merger plans early in the year, the questions started: Will regulators approve the megadeal? What kind of hoops might the banks have to
jump through to get the OK? What impact would the final decision have on bank M&A? Now we know the answer to two of those questions. The banks have secured the approval of the Federal Reserve and Federal Deposit Insurance Corp. BB&T and SunTrust plan within the next month to complete the $28 billion combination that will create Truist Financial, a $450 billion-asset bank based in Charlotte, N.C. It is the biggest bank merger in at least 15 years.

While some conditions were imposed, including a consent order tied to deceptive practices at SunTrust, regulators were far from overbearing during the approval process. And there was minimal resistance from outsiders; 90% of the comment letters about the merger were supportive of it.

The speculation about what happens next will heat up. The relatively smooth approval process could embolden other deal-minded banks, though their window of opportunity may close
quickly depending on the outcome of the presidential and congressional elections next year.

Here are three key takeaways stemming from BB&T and SunTrust’s experience in getting the
green light:

The process could encourage other mergers

The speed of the regulators’ approval, and a lack of onerous conditions or restrictions, likely will be viewed favorably by other big banks that are mulling a merger or acquisition. Less than 10 months elapsed between the deal’s announcement and its approval, and the branch divestitures — 30 locations and $2.4 billion in deposits — were relatively modest,
industry observers said.

“If I’m running a similarly sized bank as one of these two, I take this as a very positive sign,” said Jacob Thompson, a managing director of investment banking at SAMCO Capital Markets
in Dallas. “I think that’s true whether you’re a buyer, seller or looking at a merger of equals.” Regulators, on occasion, use deal approvals to interpret and explain how they are enforcing
existing laws. For instance, the Fed used its approval of BB&T’s 2015 purchase of Susquehanna Bancshares to introduce how it would assess a deal’s impact on financial stability under the
Dodd-Frank Act.

Tuesday’s orders really didn’t introduce anything new thinking or approaches. In fact, the Fed and FDIC made it clear that they had no statutory reason to reject the merger. FDIC Chairman Jolena McWilliams said in an interview this fall that, while the FDIC has “some flexibility and discretion” to interpret statutory requirements, the agency must approve a merger if existing legal requirements are met.

“You’ll see others take that as clearly encouraging that they could pull this kind of thing off …so long as they have their ducks in a row,” Thompson said.

The 2020 election could become a deadline for dealmakers

Dealmakers may be motivated to proceed quickly given the upcoming election year.

The existing regulatory leadership has largely proven business-friendly under President Trump. But that environment could change drastically if Republicans lose the White House or the Senate. Democrats, including presidential hopeful and Sen. Elizabeth Warren, D-Mass., regularly air concerns about the risks of deregulation.

A Democratic Congress could pursue legislation to toughen the legal process for reviewing big-bank M&A.

“Why run the risk of what happens next November?” said Jon Winick, CEO of the bank adviser Clark Street Capital in Chicago. “The longer you wait the more likely a regulator might slowwalk a deal to see what the new boss is thinking.”

In large measure, the BB&T-SunTrust merger has been billed as a way to scale up, bolster the combined bank’s ability to invest in technology and compete with megabanks such as Bank of
America and JPMorgan Chase. Using that logic, any regional bank could pursue a similar combination.

Clark Street Capital American Banker Feature

Pittsburgh banks brace for BofA, JPMorgan | American Banker 1/4
Pittsburgh banks brace for BofA, JPMorgan
By Ken McCarthy
Published July 10 2019, 1∶47pm EDT

Pittsburgh is becoming a crowded market as two big banks, and a number of smaller institutions, target a city that has long been dominated by PNC Financial Services Group.

Bank of America entered the Steel City in September, and JPMorgan Chase announced plans in March to open three branches there by the end of this year.

The megabanks will intensify competition in a market that already has nearly 50 banks sparring over $137 billion in deposits, according to June 2018 data from the Federal Deposit
Insurance Corp.

“We already have enough competition,” said Vince Delie, chairman and CEO of F.N.B. Corp. in Pittsburgh. The $34 billion-asset F.N.B. was the city’s fourth-biggest holder of deposits in mid-

Still, Delie said he views the arrival of bigger banks like Bank of America as a positive for Pittsburgh because they will provide more capital to a city that could use more investment.

“I don’t think their physical presence is a barrier to us being successful,” Delie said, adding that other banks have entered the market before backing away.

Fifth Third Bancorp in Cincinnati tried to establish a retail presence in Pittsburgh but eventually gave up. The regional bank, which had 17 branches and $728 million in deposits in
mid-2015, sold those operations to F.N.B. in April 2016.

Bank of America, for its part, intends to stick around.

The Charlotte, N.C., company has seven branches in the city. It plans to open three more offices this year.

The market has so far exceeded Bank of America’s expectations, and client reception has been strong, said Brian Ludwick, the company’s Pittsburgh market president. Merrill Lynch, which
Bank of America bought during the financial crisis, has catered to business banking and wealth management clients in Pittsburgh for 80 years.

“I can’t think of anything that’s disappointed me,” Ludwick said. Digital banking, a product that Bank of America introduced to the market before building its first branch, has been a “clear
differentiator,” he added.

It makes sense that PNC — chartered just outside of Pittsburgh in 1864 — would feel some pressure from other big banks, industry experts said.

Bank of America has one of the best online banking platforms in the country, said Jon Winick, CEO of Clark Street Capital. While Bank of America may not be overly aggressive in lending,
particularly with commercial credits, he said the company will likely go after low-cost funding around the city.

Winick predicted that Bank of America will expand modestly, take some market share and force PNC to pay a little more for deposits.

The regional bank has held its own in its hometown. Its deposits around Pittsburgh, excluding those in its corporate office, rose by 12% between mid-2013 and mid-2018, according to FDIC
data. Those gains came even though the company shed nearly 30 branches in the market over that period.

Bank of America has managed to book nearly $800 million in commercial loans in the market, Ludwick said. While he said specific data wasn’t readily available, Ludwick said Bank of
America is ahead of schedule when it comes to bringing in deposits. Ludwick said he views JPMorgan Chase’s effort as validation for what Bank of America is doing.

Bank of America already competes with JPMorgan Chase in other markets, so it won’t have to adapt its strategy in Pittsburgh. Rather, the company is investing in all business lines in the
market, recently adding commercial bankers from Wells Fargo and hiring 24 employees for its Merrill Lynch operations.

Pittsburgh is a solid example of a Rust Belt city reinventing itself, Winick said. The city has seen a rebirth, led in part by a growing focus on technology. Pittsburgh was also a
finalist as the site of Amazon’s second headquarters that ultimately went to Northern Virginia. Delie, who grew up in Pittsburgh’s Northside neighborhood when the unemployment rate was
as high as 17%, said he understands the city’s revitalization better than most.

“Everybody that I knew, their parents were unemployed because of the demise of the steel industry,” Delie said.

Jon Winick Featured in American Banker

American Banker 1/4

WesBanco joins parade of W.Va. banks into D.C. area
By Ken McCarthy

Published July 24 2019, 3∶48pm EDT

WesBanco in Wheeling, W.Va., is following a playbook used by other expansion-minded banks in its home state.

The $12.5 billion-asset company is set to enter Baltimore and Washington — two of the mid-Atlantic’s fastest-growing markets — after agreeing to buy the $3.1 billion-asset Old Line Bancshares in Bowie, Md., for $500 million.

Growth is a challenge for banks like WesBanco that have historically operated in rural markets. While the company has a strong presence in Huntington, West Virginia’s second biggest market, the city’s population fell by nearly 20% between 1990 and 2017, according to the Census Bureau.

WesBanco is “in a lot of sluggish or slow-growth areas in Kentucky and West Virginia,” said Bert Ely at the consulting firm Ely & Co. in Alexandria, Va. “By buying Old Line, they’re moving into a more urbanized and potentially more dynamic market.”

Other West Virginia banks have made similar moves.

MVB Financial in Fairmont and United Bankshares in Charleston have focused heavily on Washington in recent years. MVB has targeted having $1 billion in assets in northern Virginia in the next two to three years, while 10 of United’s last 11 acquisitions have been around the nation’s capital.

Washington “is a market everyone wants to be in, and it’s a natural expansion for WesBanco,”said Jon Winick, CEO of Clark Street Capital.

The move shouldn’t be too surprising. Todd Clossin, WesBanco’s president and CEO, had made it clear he would look at markets located within six hours of Wheeling. Washington is only a five-hour drive away.

A limited number of banks operate in both Washington and Baltimore, and Winick added that the planned merger of BB&T and SunTrust could provide opportunities in both cities.

While WesBanco has yet to set a growth target for Washington, Clossin said during a conference call to discuss the deal that his team will focus heavily on northern Virginia.

“We’re not coming here to do this and be done,” he said.

Clossin said he will continue to evaluate buying banks about a fifth of WesBanco’s size after it acquires Old Line. That could mean targets with up to $3 billion in assets.

“You want to be sure you’re partnering with a team and a bank that’s going to be big enough to defend and grow,” Clossin said.

James Cornelsen, Old Line’s president and CEO, said during the call that the deal puts Old Line in a better position to provide value to its customers.

“We’re proud to say that our customers have grown with us,” Cornelsen said, noting that Old Line had grown from a single branch to having 37 locations in the past three decades.

Clossin said both banks have strong credit quality and disciplined risk cultures. He also said that while Old Line is focused on commercial lending its residential mortgage book is a
highlight of its portfolio.

The Old Line deal, which is expected to close by early 2020, will significantly enhance WesBanco’s growth potential by providing access into “dynamic” markets, Will Curtiss, an analyst at Hovde Group, wrote in a note to clients.

“The deal is not without some execution/integration risk given its relative size and extension into newer, more competitive markets, but [WesBanco] has a fair amount of recent experience
executing similar type deals, which should help alleviate some portion of those concerns,” Curtiss added.

WesBanco completed two deals last year, buying the $1.7 billion-asset Farmers Capital Bank in Frankfort, Ky., and the $662 million-asset First Sentry Bancshares in Huntington.

Other industry observers were supportive of the Old Line deal.

“Our initial thought is that this transaction makes sense for both sides,” Casey Orr Whitman, an analyst at Sandler O’Neill, wrote in a note to clients.

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