AFS Best Practices Leadership Council Webinar PPP: the Big Picture a Retrospective Update

AFS Best Practices Leadership Council Webinar PPP: The Big Picture A Retrospective Update

April 8, 2021

Vision to see the future...experience to get you there. afsvision.com Agenda

Program History & Timeline • Legislative • Financial • Regulatory 2021 Key Features • Second-Draw Loans • Small/Minority Borrowers • Forgiveness PPP Overall Performance • Political/Legal • Regulatory • Operational • Media • The AFS Perspective • PPP Lenders Lender Experiences: Discussion

Mar Jan Authorizing Act Apr May Jun Jul Aug Sep Oct Nov Dec Feb Mar 2020 2021

CARES Act Initial funding of Initial funding depleted by 4/16/20; application deadline 3/27/20 $349 billion 6/30/20; program expires 12/31/20

PPP and Health Care Authorized additional Enhancement Act funding of $310 billion 4/24/20 PPP Flexibility Act Various amendments – 60/40 cost ratio, 24 weeks 6/5/20 covered period by 12/31/20, forgiveness rules PPP Extension Act Application deadline extended to 8/8/20; 7/3/20 $137 billion remaining at deadline, returned to Treasury Re-launched with new Economic Aid Act product, $284 billion 12/26/20 funding, 3/31/21 expiry American Rescue Plan Act Authorized additional PPP 3/11/21 funding of $7.25 billion

PPP Extension Act of 2021 Application deadline extended to 5/31/21, 3/30/21 SBA approval deadline to 6/30/21

New Funding, Second Loans & Set-Asides • $284 billion new funding • Second-Draw Loans – $2M maximum, first loan fully used, documented 25% sales reduction, 300 employees (vastly larger volume than first-draws) • Set-Asides for Small Lenders & Minority Borrowers – exclusive access windows • Set-Asides for Hard-Hit Industries – live venues, restaurants, hotels (including American Rescue Plan Act) • Forgiveness Process – one-page form for under $150K, self-select forgiveness period (8-24 weeks) • Processing Fees changes – smaller of 50% or $2500 for loans under $50,000 • New Allowable Expenses – protective measures, business software, supplies • Public companies prohibited

New Funds Approved Net Approved Average Unused Funds Time Frame Lenders Authorized Loan Count Dollars Loan Size Returned Round 1 April 2–16 $349 Billion 1,661,367 $342.3 Billion $206,022 ---- 4,975 2020 Round 2 Apr 27–Aug 8 $310 Billion 3,671,659 $208.4 Billion $56,765 $137 Billion 5,460 2020 Round 3 $291.25 Jan 11–Mar 31 3,584,826 $211.8 Billion $59,084 ??? 5,236 Billion 2021 Grand Total $813.7 8,728,494 $734.1 Billion $84,104 TBD 5,476 (net of adjustments) Billion Approvals through 03/28/2021

Source: SBA

Aggregate PPP Loan Data 9 900 Volume of Loans Number of Loans Round Round Round Approved ($ Billions) Approved (Millions) 8 800 1 2 3 7 700 6 600 5 **************** 500 4 Rounds 1-2 $137B remaining at Round 3 400 3 authorized August deadline, authorized 300 $659B returned to Treasury $291.25B 2 200 1 100 - 0

Loans Approved (#) Loans Approved ($000)

First Draw Loans Loans Approved Net Dollars Average Loan Size Lender Count

Total First Draw Loans 1,562,181 $31.4B $20,126 5,123 First Draw – 10 or fewer employees 1,528,650 $23.0B $15,055 5,108 First Draw – LMI & less than $250K 442,085 $7.6B $17,230 4,455 Second Draw Loans Loans Approved Net Dollars Average Loan Size Lender Count Total Second Draw Loans 2,022,645 $180.4B $89,174 5,209 Second Draw – 10 or fewer employees 1,550,726 $48.7B $31,424 5,189 Second Draw – LMI & less than $250K 431,180 $20.8B $48,150 4,609 Total 2021 Loans Loans Approved Net Dollars Average Loan Size Lender Count Total First & Second Draw Loans 3,584,826 $211.8B $59,084 5.236 Approvals through 03/28/2021

Source: SBA

April 8, 2021 Vision to see the future...experience to get you there. ©2021 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary. 7 PPP Aggregate Loan Approvals (as of 03/28/21)

Source: SBA

April 8, 2021 Vision to see the future...experience to get you there. ©2021 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary. 8 Top PPP Lenders by Total Number of Loans (as of 3/28/2021)

Rank Rank Rank Total Net Dollars Average Lender Name Total Loans Approved Total 2020 2021 ($MM) Loan Size 1 1 4 Bank of America 473,864 $33,555 $70,811 2 2 3 JPMorgan Chase Bank 412,309 $39,461 $95,707 3 3 2 Cross River Bank 397,547 $11,265 $28,336 4 4 6 Wells Fargo Bank 264,933 $13,422 $50,661 5 *** 1 Itria Ventures (Biz2Credit) >250,000 >$6,303 $25,212 6 *** 5 Customers Bank >225,365 $7,710 $34,211 7 5 8 U.S. Bank 161,751 $10,317 $63,783 8 6 10 TD Bank 123,499 $11,509 $93,191 9 8 9 PNC Bank 113,082 $16,937 $149,776 10 7 11 Truist Bank 110,072 $15,416 $140,053 11 9 *** Citizens Bank 74,008 $5,259 $71,059 12 10 12 Zions Bank 71,689 $9,558 $133,325 13 11 14 KeyBank 66,010 $10,734 $162,611 14 *** 7 ReadyCap Lending >58,049 >$1,856 $31,972 15 14 15 M&T Bank 55,422 $9,360 $168,886 Source: SBA, AFS BI

The forgiveness process is in place only for 2020 loans so far. 2020 Loans by Number 2020 Loans by Dollars Total Volume 5.2 million $521.2 billion Forgiven 2.3 million $194.5 billion Not Forgiven --- $0.6 billion Under Review 246K $87.8 billion Applications Not Yet Received 2.6 million $238.3 billion

Data as of 03/25/2021

Source: SBA

April 8, 2021 Vision to see the future...experience to get you there. ©2021 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary. 10 PPP Overall Performance: Political & Legal

• CARES Act was put together hastily and rushed through the legislative process in a matter of days in order to speed implementation and distribution. • SBA became “owner” of the program because it involved the 7(a) program, yet it overwhelmed the agency with expectations for immediacy, untested technology updates, and massive loan volumes. • Partisan disagreements in Congress created long gap in funding from April to August – biggest issues were aid to state/local governments and effects on budget deficit. • Legal but ethically questionable – loans to public companies; companies owned by members of Congress/spouses/families; administration officials/families; and loans to churches, anti-vaccine organizations. • SBA created 9-page “necessity questionnaire” for companies receiving loans over $2 million. • Political actions sometimes created more operational ones – two-week window in Feb/March “came too late” for many and caused application backlog for all others. • Are there potential legal issues to come?

• Give SBA some credit – given a rushed and vague law, with expectation of immediate implementation, they were on the defensive with rules and technology glitches throughout. • Political requirements and pressures forced changes to be implemented virtually immediately – technology updates were rushed and inadequately tested. • SBA Inspector General issued report critical of SBA for setting stricter rules than CARES Act, causing “unintended burden to borrowers.” • GAO report stated SBA urgency to implement PPP caused undue confusion for duration of program. • Small businesses were uncertain whether they would qualify for forgiveness, causing many to return loans. More than 170,000 loans ($38B) returned by June 2020 over lack of clarity. • SBA Inspector General report in March 2021 found $692 in duplicate loans issued in 2020 to companies with same Tax ID; SBA “did not always have sufficient controls in place.” • Bankers praised technology improvements made by SBA to get ready for 2021 loans – new origination portal with improved user interface.

CARES Act Enacted Mar 27, 2020

Mar Jan Apr May Jun Jul Aug Sep Oct Nov Dec Feb Mar TOTAL 2020 2021

New or -- 10 10 8 -- 2 -- 1 -- -- 3 -- 1 35 Amended Rules

Procedural -- 2 1 1 1 ------5 2 -- 12 Notices

New or -- 2 1 5 2 -- 1 3 -- 2 1 -- 4 21 Amended Forms

FAQs -- 39 9 2 -- 3 -- 1 -- 2 -- -- 1 57

Interagency 1 2 2 1 -- -- 2 1 1 -- 1 -- -- 11 Guidance

• “14 years worth in ten days” • “A stampede through the eye of a needle” • SBA systems were overwhelmed by volume of loans and lacked many control features • Frequent changes to rules and information requirements created confusion and delays • Numerous questions around legal responsibility for eligibility, affiliations, underwriting standards, documentation • Lack of clarity and frequency of changes created anxiety and reluctance to apply after initial rush • Nearly 5% of 5.2 million loans approved in 2020 had “anomalies” • SBA implemented more controls and updates for 2021 round, but caused delays for reviews and false positive error codes • Formatting problems in order to pass SBA automated vetting forced lenders to revise systems frequently to keep up

April 8, 2021 Vision to see the future...experience to get you there. ©2021 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary. 14 PPP Overall Performance: Media Coverage

• TV/press/media coverage tended to focus on negative, anecdotal aspects – slow disbursements; large public firms getting loans; lawsuits against banks alleging favoritism; smallest businesses “left out” • Filed and won Freedom of Information Act lawsuit to force release of names and loan amounts of all borrowers – information released December 2020

Some Headlines • “Frustrated by PPP, many small businesses are ditching their banks” American Banker, 06/20 • “Following messy start, enormous PPP shows signs of buttressing economy” Washington Post, 06/20 • “Paycheck protection program has gone from business lifesaver to a mess” Marketwatch, 12/20 • “ABA letter to regulators highlights PPP issues,” S&P Global Market Intelligence, 01/21 • “Some economists say PPP has not saved many jobs,” New York Times, 02/21 • “Small businesses give fintechs low marks for pandemic relief,” American Banker, 02/21 • “Fraudsters laundering millions in Covid relief funds through online investment platforms,” CNBC, 03/21

April 8, 2021 Vision to see the future...experience to get you there. ©2021 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary. 15 PPP Overall Performance: The AFS Perspective

• High proportion of PPP loans processed on AFS systems: • Approximately 40% of the dollar volume of loans for top 15 PPP lenders • One in every three loans for those lenders • Provided sustained support, guidance and expertise for all clients • Provided innovative tool for client to upload PPP loans en masse • Winner of Fintech Futures Award: Best COVID-19 Response by Fintech • Delivered webinars to keep clients and industry informed of relevant data • Provided industry credit quality reports throughout pandemic • “When we were concerned about scaling internal resources in time to handle the volume of PPP loans, we turned to AFS as a trusted partner to help us get the most out of our AFS system”

April 8, 2021 Vision to see the future...experience to get you there. ©2021 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary. 16 PPP Overall Performance: Was It Worth It to Banks?

“We were having line draws, like everybody else, that were substantial. We were engaged in PPP where we were the third largest PPP producer, producing about $13 billion in those loans. We were happy to do that, although it was very hard in terms of supporting our small business clients.” ~ Kelly King, CEO, Truist "In addition to providing hardship relief, we continue to support our customers through the Paycheck Protection Program. Due to the tremendous efforts by hundreds of Fifth Third employees, we have successfully originated $5.5 billion of loans, benefiting 38,000 small and midsized businesses, which in turn, helps approximately 500,000 employees of our PPP customers.” ~ Greg Carmichael, CEO, Fifth Third Bank “The SBA's Paycheck Protection Program, or PPP, is certainly one of the primary tools for supporting our customers, and Bank of Hope has been an active participant.” ~ Kevin Kim, CEO, Bank of Hope "The PPP program was really, really impactful to our customers because I don't think we can underestimate that.” ~ Melinda Chausse, CCO, Comerica “Consider the incredible work that’s been done at Regions to connect tens of thousands of small businesses with Paycheck Protection Program funding from the SBA...That’s an illustration of our focus on supporting the companies that are the economic heartbeat of our communities.” ~ Caroline Taylor, SVP, Head of SBA Lending, Regions

Interest revenue contracted sharply in 2020 compared with the levels seen in the previous year. Fee revenue from PPP loans helped to partially offset the loss in interest revenue.

Interest Revenue Year over Year Interest Paid Fee Revenue Year over Year Fees Paid YTD in Bps YTD in Bps Interest Paid SBA PPP Fees Paid SBA PPP 500 70 60 400 50 300 40

200 30 20 100 10 0 0 2019 2020 2019 2020

Note: Interest Revenue expressed on an annualized basis as a percentage of loan outstanding balances. Fee Revenue expressed on an annualized basis as a percentage of loan outstanding balances. Source: AFS Pricing Dashboard – December 2020

April 8, 2021 Vision to see the future...experience to get you there. ©2021 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary. 18 PPP Overall Performance: Was It Worth It to Banks?

Lender Experiences: Open Discussion • Favoring existing customers for PPP loans • Disruptions, delays and aggravations • Loan processing fees • Benefits of loan deferral authority • New small business customer relationships • Impetus to digital transformation and innovation • Reputational impact of participation • Fintech partnerships • Would you do it again?

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