Doug Houser:
From Rea & Associates' remote studio, this is unsuitable, a management and financial services podcast for entrepreneurs, tenured business leaders, and others who are ready to look beyond the suit and tie culture for meaningful, measurable results. I'm Doug Houser. On this weekly podcast, thought leaders and business professionals breakdown complicated and mundane topics, and give you the tips and insight you actually need to grow as a leader, while helping your organization grow and thrive.
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In just a short amount of time, banks have drastically changed the way they operate in the hope of easing the financial anxiety in the marketplace. With commercial banks certainly being at the epicenter of a financial storm, you can't help but look at all the ways COVID-19 has affected the banking industry. With many challenges and changes, banks have the monumental task of keeping up with a slew of ever-changing demands.
Today, Mike Misich, senior vice president and senior commercial banker at WesBanco in Columbus, is going to share what this experience was like from the trenches, while also discussing the current state of the commercial banking industry. Welcome to unsuitable, Mike.
Mike Misich:
Good afternoon, Doug.
Doug:
Great to have you on, as always. I think this is your maiden podcast? I know it is with us. Have you done any before?
Mike:
No, this is my maiden podcast. The closest thing would be a little Face-timing with the family.
Doug:
There you go. Well before we get started, I've got to ask, this is all the controversy now. It looks like our favorite team, the Cleveland Indians is going to get renamed, right? Assuming that happens, what's your name of choice?
Mike:
My name of choice would be the Spiders. So when we scale back in history, in the last 1800s when they were horrible, I think they lost 120 games their last year as the Spiders, that's what they were called. At least the logo could be somewhat entertaining. What's your perspective on things?
Doug:
No, I like that. I like that, tie back to history. They actually did win a world title as the Spiders once. I think the kids would like that, too, it would be pretty cool. I'm with you on that. We'll see.
Obviously, with banking right now, such an uproar. You and I both went through the whole PPP initial ... certainly, panic, and everybody getting their application in. Where do you stand with all of that now, with the PPP stuff? Has it settled in a little bit, and all that?
Mike:
I think it's settled in. We're waiting on the SBA to give clear guidance on certain issues that have settled in. You know, this week we started taking applications again, as the program got extended into August, so we're back up there. We had some clients that were waiting for that to happen, and we got the official word yesterday, the day before yesterday, that we could start taking applications again. Right now, we're waiting on the forgiveness side of things, we're waiting on some clarity there. Once we get that, we'll be ready to move forward.
Obviously, our clients are very anxious, so we get a lot of questions from people, with when the portal will be available. We're going to do everybody, regardless of how their loan was approved, we have an online portal that they'll use to make their forgiveness applications. So either the expedited version or the long version.
Doug:
Yeah. Apologies there, we had a little breakup. But yes, I agree with you, I think folks are anxious to get that forgiveness application done and in. I know some of the banks have said, gosh, they're not even going to be ready until the fall. So it's interesting, how different the process is across all of the institutions. But certainly, a lot of anxious clients out there, so glad to hear you guys are going to start that soon.
Have you seen any traction at all, Mike, with some of the other SBA related programs, like the Main Street lending program? Which is direct through the Treasury, not an SBA program, that was part of the CARES Act. Have you seen any traction with any of those things at all?
Mike:
No, and I talk to a lot of the other bankers. The Main Street program, really, there's a number of issues that people probably have with it, but the biggest thing for our clients, it ends up you need to have a little more flexibility with regard to leverage. Because a lot of the businesses that really need to use the program are in a big cash flow crunch, so their leverage is extremely high. I think tying a number that makes it very difficult for the program to really help. I know Mnuchin has said there's something coming down the road, hopefully, for certain industries. But really, the PPP program has been the biggest one.
The other benefit for people has been on traditional SBA loans because there were six months of forgiveness on the payments associated with those loans automatically. So people who had SBA loans received some benefit there. And my understanding is, depending upon the timing of closing, some of the new SBA loans will also get additional forgiveness, so they'll go without payments for a few months when they start.
Doug:
Yeah, good to know. It's well worth exploring, certainly, on that end of things.
As we think about traditional commercial bank relationship, and we both deal with similar types of clients, owner-managed businesses in various industries, what are the biggest issues? Or, what's the thing that you would tell those folks now, to think about? As they come back to you, either for annual renewal, or additional assistance, things like that. What type of stuff, messaging, would you give to those folks, that they need to be thinking about?
Mike:
I think every business owner needs to understand, and then communicate to their trusted advisors, how COVID has impacted their business. We're asking everybody, "Tell us what the impact has been."
You know, there's a lot of times where you either underestimate or overestimate the impact. So when you get to the details, if the clients are ready with that, and say, "You know, in some cases, businesses have been relatively unaffected, they've got employees working from home, the revenue stream has remained intact, we didn't have any business interruption." Those are the kinds of things they need to communicate with their banker.
I think the other thing would be planning what's the worst ... Really, seeing what's happened to other businesses. Most of my clients have been fortunate, where they either have had no infections, or any infections they had they were able to isolate quickly, or the employee wasn't at work. What are you going to do if it hits close to home? Do you have a plan?
Doug:
Yeah, I think we see that, too. It's just thinking through those scenarios. I'm just amazed ... You and I go back to banking days before I've been at Rea. I'm amazed at sometimes the lack of information that clients can provide to their banker, or a surety, or whoever the third-party advisor is. Think through the kind of information that a third party advisor like yourself needs to make good decisions. You guys are extending a lot of credit to companies, so having that information available and ready to give to you, I think, is paramount, and really, even more, important right now. Would you agree with that? What extra information are you looking for, too?
Mike:
The extra information really is making sure their financials are really up to date. Obvious, there's a lot of companies that you and I have ... In terms of our interaction with clients, we know that sometimes they get a little behind on financials. This is one of those times you don't want to fall behind. So if somebody shows me a March financial right now, obviously I can't see any of the impacts of COVID, even though they might have had a week or two. If they're looking at a big expansion or an acquisition, you're going to need to have a forecast that says, "By the way, here are my May or June numbers. And then, here's how we think we're going to finish out the year." I mean, support your case if you're really interested in doing something.
It's amazing that ... There's just is no way, without really having some concrete information to make a good decision, and it's amazing the number of companies who sometimes, they don't give a lot of thought to that. We'll get further down the road and they're like, "You know what? I didn't think about all these things, maybe I ought to hold off for 60 days and see how things turn out before we do things."
Obviously, there are other businesses that have had no impact whatsoever, but I would say, for the majority everybody's been touched.
Doug:
Yeah. I agree with you, I've long been a strong advocate of planning and forecasting. Even though it's obviously an inexact science, to have that information at hand shows a banker like yourself that at least they've thought through those things. And they've given some thought to it, echoes a long way, I would think, with your credit deaccessioning, right? Just that companies have that kind of forethought?
Mike:
It does. And when they present a package like that, it gives you the confidence that they've really thought through all the potential pitfalls. And frankly, it gets an extra seal of approval if they sit down with an advisor like you, and review those forecasts with their advisor so you can give them the benefit of what you've seen in other businesses, and make sure that what they're showing us puts their company in the best light.
Doug:
Yeah, absolutely. It's just, I think, having those things where you're comparing ... I sat down with a client recently whose getting ready to put together a bank package and walking through some of the things. Have year over year financial comparison. They were ready to have numbers through, say, June of this year, which is great. To your point, you've got some light shed on what they've done through COVID, but they didn't think to include, for example, last June. So you can compare, how does this look year over year, what's going on, what's the change, all those types of things. You want to look at receivable quality, is there a potential risk there? All those kinds of things that you guys want to see and think through, I think it just behooves every client to do that on a regular basis, update their file.
We always tell folks to have a living audit file. They should have a living bank file of information ready to give you, too.
Mike:
Really, having a good succession plan in place, to making sure your banker understands that you have a good team of people to really run the company. It's not just dependent on one person.
So many times, we've always thought it was the one business owner, and then you dig a little deeper and you find out there's a half dozen key individuals who can step up if necessary. It's important to communicate that.
Doug:
Yeah, that's a great point.
So what's the sentiment right now, in terms of underwriting? Certainly, it's had to have tightened a bit since COVID started. But, is it still fairly flexible, and financing available out there for good companies?
Mike:
There's plenty of financing out there for good companies. There are certain industries that, obviously, we know are impacted significantly, and it makes it more difficult for us to do things. I mean, you think of some of the healthcare-related fields when 75% of your fatalities come from the longterm care side of things. That's one where there are a lot more questions that need to be answered. If you're in a hotel or hospitality, obviously people aren't traveling the way they used to. Even restaurants, their capacity has been reduced significantly.
A lot of those are things that people can address, in terms of the way they forecast and provide their financial information. But, definitely, we're looking at some of those impacted industry a little bit harder than we did before. It's just the deals that are getting done are really getting done in those tougher industries are getting done by the people who really spent a lot of time informing their banker, and really probably have communicated on a weekly, or a monthly basis at the least, during this entire process.
Doug:
Yeah, that's a great point as well. I think one of the things we're trying to do with our business is taking this opportunity, as well, to step back and think longer term. Yes, we're in this shorter-term crisis, but let's think long term. For example in our business, how we serve clients, or what types of things are really important to our clients. My construction clients, I've encouraged them to do the same type of thing. Let's take a step back and think longer term.
How are you approaching that with your customers and clients? Are you encouraging that type of thought process, too? Or, is it more like hey, we need to get through this crisis first?
Mike:
No, I think we're encouraging them to do those same things. I mean, we'd all like to think that this is going to be over soon, but the reality is, as of right now, you have to look at it as if it's going to be around not just this year, but next year. Then, relatively speaking, I think we all hope that we'll have a vaccine or something like that, that will return us to normality. But I think we all in the back of our minds are thinking that whatever is normal is going to be a new normal. It's inevitable, with how small the world's become when you can get from any place in the world to another place in the world via the internet in seconds.
Doug:
How has it impacted the way you interact with clients? Obviously, reducing the face-to-face and all that. But, have you guys adapted to Zoom interactions with clients, or WebEx? How's that changed, for those commercial clients?
Mike:
Yeah, we've used Zoom a lot more, obviously for meetings. Recently, I had one other gentleman who works with me and four clients on a Zoom call. The four clients were all in four different states. In some ways, it's created a time dividend for everybody because you find new ways to communicate so instead of losing travel time, you're talking on conference calls, or you're talking on a Zoom call or a WebEx call.
The other thing I've noticed is that, when we've had clients that really want to meet face-to-face, they prefer to meet in our office. Which, as you know from all your time in banking, one thing we never saw except at a loan closing was a client.
Doug:
Yeah.
Mike:
The only reason you had it in the bank was because you needed a notary, right?
Doug:
Right. Are you re-thinking the workspace that you've got? In your commercial bank group, how does that impact? I know we started to think through our own office space. Are you guys doing the same?
Mike:
I mean, formally we haven't done anything with regard to it. We're probably at 15% of capacity most of the time now. I think the branch delivers network is still important, although I would tell you we're servicing more clients through drive-through then we are actually in the office. But, you don't need to be here to get your job done.
So once we adapted to having enough monitors and things like that at home ... I'm sure you guys probably use multiple monitors, we do, too. You really don't need the same physical presence to stay connected, and I think our clients are the same way. Most of the CFOs and owners I talk to are probably in the office 40% of the time, instead of 120% of the time.
Doug:
Right. In some ways, yeah I don't think those changes are going to go away. We may meet somewhere happily in the middle. As you say, it may not be 40%, but it's not going to be the 100 plus percent that folks felt like they had to be in the office before. It'll be certainly interesting.
Mike:
Doug, on your end of things, have the lunches gone away? I mean, I really haven't had many people who want to meet for lunch.
Doug:
Yeah, those types of things certainly don't occur as frequently. We're finding different ways, obviously, to interact as well. We might have a morning coffee and sit outside, those types of things are still happening. Over the last month, we've gotten out. Our audit teams, there are some things we have to do physically at the client, so we make sure we adhere to the right protocols and make sure folks feel safe. But, it's certainly been an adjustment, and I think we're going to continue to see that. Particularly, as you said, certain industries that we haven't even thought all the way through. Colleges and universities are facing a big crisis, all kinds of things, and how those trickle down to those economies. There's just so much more to come.
Well, this has been great insight, I really appreciate it. Hit them straight next time, on the golf course.
Mike:
Or, straight somewhere.
Doug:
Yeah, exactly. We'll do that. Look forward to having you back on, at a better time, hopefully when we can be face-to-face. We always enjoy doing our podcasts in the same room and toasting a beverage of choice together as well, so we'll have to make up for that sometime. But, thanks for being on today.
Mike:
Thanks for having me.
Doug:
If you want more business tips and insight, or to hear previous episodes of unsuitable, visit our podcast page at www.reacpa.com/podcast. While you're there, sign up for exclusive content and show notes. Thanks for listening to this week's show. Be sure to subscribe to unsuitable on Apple Podcast, Google Podcast, or wherever you're listening to us right now, including YouTube. I'm Doug Houser, join us next week for another unsuitable interview from an industry professional.
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