On March 25, 2020, with the COVID-19 pandemic accelerating nationwide and stalking Washington, U.S. senators unanimously passed a $2 trillion coronavirus relief bill. Two days later, the House passed the measure and President Trump enacted it. Embedded in the law was a Paycheck Protection Program—a $349 billion rescue program for small business owners facing the prospect of having to immediately shut down their firms and lay off their employees.
As the president signed the bill, the contours of the challenge became clearer. The program would be administered by the Small Business Administration and delivered through thousands of local banks and nonbank lenders. The $349 billion—budgeted to last three months, although few expected it last three weeks—amounted to 60 times the 7(a) lending SBA would usually process in the same time period. Banks were being asked to make loans over the course of days that would equal 15% of their entire previous C&I loan portfolio.
“Banks were challenged with becoming the delivery conduit for a program that they didn’t know the rules for and that came into being almost literally overnight, with changing rules and conditions and an immense amount of volume that had to pass through an undefined pipeline in that incredibly short period of time,” says Mark Gim, president and COO of Washington Trust in Westerly, Rhode Island.
It was a do-or-die moment for American workers, businesses and communities. And bankers stepped up to the challenge. This is the inside story of how America’s banks delivered the Paycheck Protection Program.
One early choice for banks in the early days while SBA and the Treasury Department put together more details on the PPP: from whom should we accept applications, and in what order should we process them? Banks took several different approaches—each of which had their own logic.
One was to prioritize existing customers. With overwhelming demand and uncertain rules, some of the nation’s largest banks did this for round one. As Terry Peterson, who leads Pacific West Bank in the Portland, Oregon, area, puts it: “You have to take care of your existing clients first.” Pacific West got every single round one application approved before funds ran out, 160 deals for a total of $30 million, and 95 percent were existing clients. “Round two is going to be really more for prospective clients,” he adds, speaking during the interlude between round one and two. When prioritizing limited staff time—and E-Tran licenses—existing customers often came first in line.
Meanwhile, in DeWitt, Iowa, President and CEO Greg Gannon says DeWitt Bank and Trust didn’t prioritize existing customers, but “it is a quicker and more efficient process to serve those existing customers first, primarily because of Bank Secrecy Act requirements.”
The second approach was to use the opportunity to wow new customers. “That was one of the huge wins,” says Brent Beardall, president and CEO of WaFd Bank. “We have one of the highest percentages of non-customers—about 45 percent of our loans were made to non-customers.” WaFd Bank also rolled out an emergency line of credit program for business hit early on by COVID-19 in its home Seattle market, regardless of whether they were prior WaFd clients.
Customers Bank, a midsize firm based in Wyomissing, Pennsylvania, saw about half of its loans made through its direct channel go to clients new to the bank. By the first week of May, more than 1,000 PPP recipients had moved their primary checking relationship to Customers, and the bank was expecting to double its number of overall business customers by the end of PPP, says Vice Chairman and COO Sam Sidhu.
Regardless of the basic approach, banks by and large made sure customers could get to a loan source. Citizens Bank of Edmond, for instance, referred applicants from outside of its Oklahoma City market to a nonbank fintech lender. Banks worked through informal networks and state bankers associations to help applicants find a bank with bandwidth to help.
All hands on deck
Banks pulled together big internal teams to deliver PPP. “It was incredibly apparent to us almost immediately that there was no way that the [commercial lending] workforce alone could handle it,” says Mark Gim. At Washington Trust, the commercial banking team recruited employees from across the bank—retail, wealth management, operations, technology, compliance. “I think the most impressive aspect of this was not that we got a process forged and hammered into place that became effective in a period of several days, but that the motivating impulse behind all of it was getting money to customers who needed it or—not even customers—getting money to businesses who needed it.”
Despite SBA and Treasury releasing key information about how the program would work on the evening of April 2, PPP officially launched on April 3. At community banks, it was all hands on deck. (Even CEOs were drafted to enter loans into E-Tran.) At Capital Bank, based in Rockville, Maryland, commercial lenders handled the client interaction, while the credit team became loan processors inputting data into E-Tran. The deposit and branch teams were enlisted to do customer due diligence for new clients.
For every bank, PPP was layered on top of numerous other challenges. “During this time, we also had [Economic Impact Payments], so you needed to process all those stimulus checks and ACH payments,” notes Beardall. “And you also have the fact that, oh, by the way, we’re in the middle of the next great credit crisis. So we have all kinds of borrowers that are seeking payment relief, and your normal day-to-day jobs are pretty busy to begin with and then we’ll put PPP on top of it.”
Then banks got in touch with SBA—with outcomes that varied depending on the helpfulness of each SBA regional office. Taylor Bank, located on the Delmarva Peninsula, and Capital Bank had good experiences with the Baltimore regional office, for example, but bankers in some other areas did not. Bankers learned to rely on their state associations and peers for key intelligence. At South Atlantic Bank, based in Myrtle Beach, South Carolina, CEO Wayne Wicker says he relied on “sharing with other banks and other states and what they’re doing.”
One thorny question that required weeks to resolve with finality was whether banks could make PPP loans to their own directors and officers. Normally this wouldn’t be the case for SBA loans, but as early as April 5, a senior Treasury official told ABA banker leadership on a conference call that there were no restrictions on director loans under PPP. It took 10 more days to get that officially confirmed in an interim final rule.
During that waiting time, South Atlantic Bank emailed SBA’s question hotline and got a response back from a district official in California. “At the time, I guess they were just farming all those questions out to whomever,” says Wicker. “We asked, ‘Can we make loans to directors?’ and the reply back was, ‘Yes, as long as they qualify, less than 500 employees, etc.’ You know, the terms of the program. We said, again, ‘This is South Atlantic Bank. Can we make loans to the directors of our bank? I just want to want to be sure.’”
Wicker laughs: “The response back from them was, ‘Oh, we thought you were talking about movie directors.”
Even without official guidance, bankers pressed on, relying on assurances in the regularly updated FAQs and numerous interim final rules that changes in guidance would be prospective and forward-looking. With the funding limited and running out quickly, “you can’t wait for the most elegant answer,” says Edward Barry, CEO of Capital Bank.
As if bankers needed more challenges, most banks had at least a portion of their workforce working remotely—and when bankers were in the office, they had to work with social distancing protocols in place. Brent Beardall counts his blessings that WaFd Bank had just completed the process of getting laptops, VPN access and videoconferencing to all back-office staff in preparation for a headquarters renovation. “Had you rewound a year before that and we’d had had this pandemic, we would have been in a world of hurt,” he says. “I actually think productivity has gone up.”
Other banks found ways to make it work in their facilities. At Taylor Bank, all but five of the PPP team worked out of the main office in Berlin, Maryland—socially distant, of course. Taylor turned its large training room with individual workstations into a PPP application processing center, says President and CEO Ray Thompson.
Money out the door
Meanwhile, the pace at which the money was going out the door was worrying small businesses, many of whom were on the verge of having to close or lay off their employees. The first $349 billion in PPP funds was exhausted in under two weeks, once the E-Tran system has worked out kinks and bankers had figured out workarounds to get loans approved.
Tensions were high and were made worse at lenders where applicants couldn’t get updates. “The inability to connect with a human being, however good your digital delivery channels are, can really lead to an escalation of anxiety and frustration,” says Mark Gim.
And the fast-changing rules made it even more difficult for applicants—especially when banks began taking applications from sole proprietors and the self-employed, who had less sophistication to understand the calculations. “We’re a high-service, high touch business bank,” says Terry Peterson. “When time is not your friend, you must impress upon your clients that you can perform for them only if they perform for you in getting accurate and appropriate information. Our clients appreciated our forthright approach as they knew we were working hard for them.”
Banks took different approaches to the timing of funding the loans—the changing rules on which were a source of consternation for bankers. Before final guidance was provided, CNB Bank in Carlsbad, New Mexico, took a “line of credit” approach—immediately funding the loan with $1,000 and then providing additional funding as borrowers documented additional expenses, which Jay Jenkins expects to help with forgiveness paperwork. Originally, there was an expectation of a five-day period to disburse the loan after an E-Tran approval number was given—but SBA still needed to provide guidance on the note required under the program. By late April, SBA provided a 10-day window for lenders to fund the loans with a single disbursement.
The promissory note took some wrangling as well. After an initial promissory note form issued on April 7 proved inadequate for many bankers’ needs, SBA clarified the next day that lenders could use their own forms and provided additional guidance on April 11. The waiting was intolerable—PPP loan applicants needed funds immediately to meet payroll and operating expenses. South Atlantic Bank got its attorney to draft its own note, which included a requirement that if “SBA comes out with their own note, the customer agreed to come back and sign that note,” says Wayne Wicker.
At DeWitt Bank and Trust, Greg Gannon funded some of the first PPP loans on April 3, the day the program opened—even before it had been able to get the loans into E-Tran. “The SBA and Treasury said, ‘Today is go day,’ so we went today,” he says, interviewed that same day. We’re funding loans, and we’re going to follow up with paperwork and whatever process we need to later.” The first two businesses to get PPP loans from DeWitt were a local pharmacy and a craft brewpub.
At Citizens Bank of Edmond, the team crashed on entering loans into E-Tran while funds were still available. When funds ran out, CBE worked all night to make disbursements. “We were economic first responders,” explains President and CEO Jill Castilla. “We had a duty to get the funds to our community and to get them to the businesses that needed it.”
The PPP process may finally put to rest the outdated concept of “bankers’ hours.” CEOs report that their PPP teams worked 16-hour days, logging 60 to 80 hours in a week, many of them overnight when E-Tran access was more stable. In the first two weeks of PPP, most bankers working on the loans only had Easter Sunday off—if even that.
Just about every banker uses the familiar analogy of building the plane while it’s flying. (Ray Thompson of Taylor Bank, headquartered near Maryland’s ocean beaches, put a maritime spin on it by pointing out that “we were building the ship while the tide is rising.”) Regardless of the analogy, though, the speed and unpredictability proved a culture shock for bankers.
Jill Castilla notes that the underwriting process for PPP “goes against all of your training as a banker,” even when compliant with SBA guidance. “We still suffer from the habit of wanting to make sure that the information is correct and verifying that, and also providing service to the borrower to make sure that they know if they qualify for more funds than what they calculated,” she explains. “We would normally provide that service and advisory role with the borrower, and stepping away from that was difficult.”
This shift was foreign to many commercial lending teams, whose work is traditionally more customized than commodified. At Capital Bank, Ed Barry drew inspiration from the bank’s mortgage lending arm, asking “how to break up all the steps that we thought were coming into more discrete steps and assign experts to help everyone move through that, so that when we get to E-Tran, everything is good to go.”
The constant churn of guidance created a challenge for banks that needed to pivot for forthcoming applications—but it also created worries about retroactive criticism for loans made under the guidance available at the time. “ABA was helpful with that, [confirming] that this is not retroactive guidance,” Brent Beardall says. “It would have been very difficult and significantly slower if we’d gone back in time and tried to make people that applied on the very first weekend comply with the rules that came out one, two and three weeks later.”
ABA provided a platform for bankers to share ideas and intelligence as the PPP implementation continued. “It’s so great to be a part of the ABA,” says Jay Jenkins, president and CEO at CNB Bank. “Not only was it helpful to reach out to our colleagues that are fellow members, they were also reaching out to us and we’re all collaborating to get through this.” Jenkins also saluted the work of ABA for “taking the lead and keeping all the banks engaged on the front lines of working with the SBA and Treasury. We’ve actually had a seat at the table because of the ABA.”
ABA’s policy staff—in particular President and CEO Rob Nichols, EVP James Ballentine and VP Dan Martini—served as a clearinghouse for sharing banker concerns and feedback with SBA and Treasury throughout the course of the PPP and getting information and analysis out to the industry. ABA maintained a constantly updated FAQ document to assist bankers; at press time, it ran to 109 pages and 297 answers. The association saw record attendance on webinars about the PPP and the CARES Act. As bankers, business owners and the general public sought up-to-date PPP information, this magazine became a major source of news on the program—the ABA Banking Journal website saw its traffic more than quintuple from February to April.
Making friends with fintech
Banks of all sizes deployed different kinds of technology to make PPP loans. At Capital Bank, the IT department put together an in-house front-end portal to take applications and port them into the bank’s CRM using SharePoint and Box to manage documents. Customers Bank relied on OakNorth, a tech partner it was using for portfolio management, to develop an end-to-end system to manage borrower documentation and pre-screen applicants. Customers Bank’s online application portal was up within 72 hours.
And with a second round of funding on its way by late April, banks of all sizes began rapid deployment of technology to accelerate approvals and ease some of the late-night pain. Citizens Bank of Edmond, which is a founding member of the Alloy Labs Alliance—an ABA strategic partner—got a referral through Alloy for MX, which provided at no charge its open-source code to expeditiously get authorizations.
The days needed for Congress to refill the PPP tank helped WaFd move from a system of manual entry and bot access to deploying two APIs to connect to E-Tran, bringing loan entry times down from several minutes to a few seconds.
At Carter Bank and Trust, based in Martinsville, Virginia, getting on line for round two was critical. The bank had been forced to wait two weeks for its E-Tran credentials and ultimately got access only 48 hours before round one funds were exhausted. “So we had to get something up and running for our customers,” says CBT Chief Information Officer Matt Speare.
Over the course of the week before round two opened, the bank partnered with its core, Fiserv, to deploy its financial institution portal for PPP. The Fiserv portal uses API integration to submit data to E-Tran. After round two opened, Carter Bank and Trust was getting loans through in the first 24 hours. The bank was able to process several hundred loans with round two. (All told, Fiserv’s portal has facilitated over 100,000 loans across its client institutions, the company says.)
Banks took varying strategies on PPP tech partnerships. Some smaller banks referred out-of-area applicants to partners. In other cases, banks provided the back end for nonbank lenders. Customers Bank processed loans for several nonbank fintech lenders; these loans accounted for about three-quarters of its $5 billion in PPP loans approved through the first week of May.
In fact, when one nonbank lender—Ready Capital—ran into difficulty processing loans referred to it by the fintech firm Lendio, Ready Capital reached out to Customers Bank for help. “All of those customers are moving over to Customers Bank, says Sam Sidhu. Applicants approved through Lendio and Ready Capital had been complaining all over social media about the lack of disbursement, and Customers Bank began funding the loans within days of partnering with Ready Capital, Sidhu says. “The lens with which we partnered with fintech firms was this: ‘Customers Bank’s involvement is going to help people get more money quicker.’”
For the second round, large, regional and midsize banks used one-time batch submission—in addition to APIs and manual submission—to process their PPP application backlog. By May 1, for example, JPMorgan Chase had gotten approval for 211,000 round two loans totaling $15 billion, bringing its total to that point to $29 billion for more than 239,000 businesses and supporting three million employees’ paychecks. “Thousands of dedicated JPMorgan Chase technologists, bankers and others worked tirelessly over the past 30+ days to support the federal government in one of the largest and most ambitious emergency lending facilities in history,” says JPMC Chairman and CEO Jamie Dimon.
Once the loans were made, it became critical for many banks to get them off their balance sheets. The Federal Reserve met the need with its PPP Liquidity Facility, which Jill Castilla says is “as near perfection a program as I have ever seen in my career.” Citizens Bank of Edmond had pledged seven pools of collateral to the Fed by mid-April. Banks also pledged the loans as collateral at their Federal Home Loan Banks.
Early returns on the PPP show clients’ gratitude. “The number of emails I get from people saying, ‘Brent, I’m typing this with tears in my eyes. Thank you. Thank you. Thank you,’” reflects Brent Beardall. “I say thank you, but we’re getting too much credit, right? This is a government’s money they’re giving away here. We’re simply a small piece in that machine, but it feels so good to be part of the solution.”
A perhaps unexpected win in many places was that PPP loans provided added cushion for businesses in the oil patch affected by the cratering oil market this spring—which briefly saw negative oil prices, mostly a quirk of the oil futures market but reflective of the worldwide collapse in prices. “In times past we’ve gone through the ups and downs of the oil market but there’s never been any type of assistance until this time,” says Jay Jenkins of CNB Bank in the Permian oil basin. “This assistance through the PPP is greatly, greatly being utilized by those companies in an effort to help build a bridge.”
One mixed result was media attention to the program. While numerous outlets—including CNBC, the Washington Post and NPR’s Marketplace, plus hundreds of local publications and stations—spotlighted the tireless work of banks to deliver PPP relief, national attention was drawn to a few publicly traded companies that met PPP eligibility requirements but also had access to other sources of capital, including Shake Shack, the parent of Ruth’s Chris Steakhouse and the Los Angeles Lakers. While these companies returned their PPP loans, many bankers worried that the criticism these firms attracted was making otherwise needy borrowers reluctant to access the PPP.
There was one more unambiguous victory for banks: team cohesion. As Beardall puts it, “One of our bankers said to me, ‘Brent, we have never been more isolated as a bank, but we’ve never worked better as a team.’”
Tammy Pool, SVP and director of community banking at Carter Bank and Trust, shares the sentiment: “I’ve been in banking 31 years and I’ve never seen such teamwork.”
Amid the euphoria of getting approvals and seeing clients’ thrilled faces, however, it became clear that the program had some major flaws. For one, could it ever be enough? As COVID-19 cases plateaued and as the weeks of lockdown ground on in April and into May, the so-called “V-shaped” recovery began to edge out of sight. Bankers knew the PPP alone would not help small businesses survive.
Part of that was due to the requirement in the PPP’s administrative design that required 75% of the loan to be spent on payroll. But with unemployment benefits temporarily elevated, many laid-off employees found it paid more not to go back to work. And as the lockdowns continued, Jill Castilla predicted, borrowers may “have to use the [funds] in order to keep the business viable so that they can have employment or their team members down the road. And many of them are using these funds to cover essential operating expense rather than to save jobs.”
When we spoke in mid-April, Castilla was worried about PPP’s results. “If we don’t have continued relief for small biz, we could look back on this and say, ‘These jobs were not saved.’ Many of these could turn into loans, rather than forgiveness programs.”
In June, Congress enacted a PPP flexibility law that reduced the minimum amount businesses must devote to payroll from 75 percent to 60 percent in order to receive forgiveness and extended the forgiveness period for all PPP loans to 24 weeks from the date of origination. It also extended the maturity period for unforgiven PPP loans made after the date of enactment to five years; the maturity on previous PPP loans was not automatically extended but may be extended by mutual agreement of the lender and the borrower. As of press time, SBA had not issued rules to implement this law, and bankers were watching to see whether it would address borrower concerns.
‘Their finest hour’
Ultimate results of the PPP in jobs preserved remain a way off, beyond the scope of this issue of the ABA Banking Journal, but early estimates suggest that 60 million Americans’ jobs were preserved with these funds.
On the first Friday in June, meanwhile, the Bureau of Labor Statistics issued a jobs report that surprised most analysts. In May, employers added 2.5 million net jobs on net, and the unemployment rate fell to 13.3 percent instead of shooting up to 20 percent as many had expected. One key difference in May was the PPP, which allowed employers who had preemptively laid off workers in March and April to bring their team members back on board.
At press time, PPP loans had reached a total of 4.2 million amounting to $531 billion and counting. Specific lender data was unavailable for round one, but in round two, banks accounted for roughly 85 percent of all participating lenders—and banks made about 97 percent of round two PPP loans. The largest government economic rescue program in American history was delivered by America’s banks.
For Mark Gim, the PPP calls to mind another daring rescue: the evacuation of Dunkirk. Having been defeated by Hitler’s forces in the Low Countries in the spring of 1940, the British Expeditionary Force was pinned down in the French seaside resort and facing imminent slaughter on the beaches of the English Channel.
However, over the course of eight days, an array of 850 ships—most of them small private vessels, including pleasure craft and fishing boats, piloted by civilians—plucked 338,226 men off the beaches and spirited them back across the English Channel.
“You don’t win wars with retreats,” Gim points out. But even in retreat, the evacuation galvanized Britain for the long war ahead.
Two weeks after the Dunkirk evacuation, Prime Minister Winston Churchill addressed the House of Commons. The fight for France had ended; the pitched battle of Britain would soon begin. It would last for years.
“Let us therefore brace ourselves to our duty,” Churchill said, “and so bear ourselves that . . . men will still say, ‘This was their finest hour.’”
This article originally appeared in the July/August 2020 issue of the ABA Banking Journal and is reproduced here with permission.