This episode is helpful to better understand how the banker is thinking about the ESOP deal. Chris Cucci is Chief of Staff at a unique bank - they are a B-Corp that understand the social impact that ESOPs play in many areas - the good that can come from selling your business to an ESOP. Chris is a veteran banker and has used his skillset to direct their efforts to be a strong resource for companies considering ESOPs.
This episode is helpful to better understand how the banker is thinking about the ESOP deal. Chris Cucci is Chief of Staff at a unique bank - they are a B-Corp that understand the social impact that ESOPs play in many areas - the good that can come from selling your business to an ESOP. Chris is a veteran banker and has used his skillset to direct their efforts to be a strong resource for companies considering ESOPs.
[0:11] Hey everybody this is theesopguy and we are on a journey to an ESOP and.
Every once in a while we get to do an interview and walk through some things that are very particular to this the state of the marketplace and what's happening with with.
Specific parts of an ESOP transaction today's topic will be centered around.
[0:32] The ESOP financing portion of the ESOP process and so the big question that kind of lingers out there when you're looking at doing an ESOP deal is hey how am I gonna get my money I'm going to do an ESOP transaction, and so that in part is going to come from working through the financing with a bank and so today we're going to we're going to go into that topic.
We're going to interview Chris cucci Chris cucci is the chief of staff and the senior Vice.
[1:00] For climate First Bank and he has agreed to explain their process and how they go through things so I'm excited too.
To get to talk to Chris before we jump in there I just wanted to remind people that are either brand-new to the podcast or just jumping back in this is a podcast it really a resource that we have created to help, understand how an ESOP transaction works and, really as a resource to help guide through the process that you're going through we do have a website at journey to an ESOP.com you can go on if you like this podcast please like the podcast subscribe to it, give us a five star rating and then if you want to if you need to go to our website and ask a question we have like a little place that you can just enter your information and we'll, get back to you so with all that Chris welcome to the podcast it will talk with you again.
Thank you so so as we start getting into the topic when I would love to start with is what's your favorite movie I know you got a ton of guitars behind you there's a story behind that as well but what is your favorite movie and why.
[2:05] Yeah and I watch a lot of movies love a lot of movies but I think a favorite one that I probably go back to and can I can watch anytime pops up on TV or streaming or whatever is the Mel Brooks comedy Young Frankenstein one of my favorites that's cool yeah I did a podcast on that one too I remember like he's kind of cool it's a classic like it's a classic one, and he's and he's just absolutely what do you love about it what is it what is what appeal I mean so just throughout the movie I think so many so many great lines you know there he's a great writer and then of course.
You have Gene Wilder good plays he's crazy as probably one of my favorite Gene Wilder roles he's just so hilarious and it so and I've seen it so many times like we're I had an uncle who probably, I was probably too young to watch it but I had an uncle who was 16 when I was born so I got exposed to all kinds of movies and music and saw the guitarist behind me as a kid, cool I'm listening to Classic Rock and watching his movies so I think I probably.
I was exposed to it as a young age and started memorizing those lines way too early way too early well that's pretty cool great well thanks again for coming on the podcast.
Let us start with like your bank is called climate First Bank and I think there's a obviously there's a there's a purpose in the even naming the bank you're also a b Corps, tell us a little bit about the bank and then we'll talk a little bit about your background.
[3:29] Sure so so climate First Bank start a bank brand new Charter we started the bank in June of 2021, we opened our first office in st. Petersburg Florida over on the west coast and this was, our founder or CEO can Lorenzo is his this is his third bank so he had successfully built and sold to banks in Florida prior to this and this think really is continuing on the mission that he started with his last bank was bank called first green bank they built to about 800 million in assets before they sold over a nine-year period, and as you can tell from that name as well first green was in 2009 they were one of the first banks in the country to start with this mission of supporting Renewable Energy Products as a Community Bank, so a lot of what they did in those years was they were really pioneering residential solar before that time most people if they wanted to put solar on their house either paying cash, or did like a home equity loan or home equity line of credit you really started doing these loans that were specific to just the solar equipment.
[4:36] Which made solar a lot more accessible to a lot of homeowners especially coming out of the Great Recession when maybe an equity loan wasn't the solution for them because they didn't have a lot of equity for a while, so you know he really was probably a little early on that concept but ended up again someone that bank, solar industry itself the residential solar industry just because number one in the last decade the cost of the equipment has gone down about 54 percent and then combined with just the quality of the technology getting better it's really exploded in the last five years so starting in 2018 so the timing was right for for the new bank so we started in 21 first office in St Petersburg we were there.
[5:20] Gosh for about nine months before we announced that we are opening another office in the Winter Park area which is close to where I live in Orlando and today we have three physical offices but really the focus is not physical for us it's a digital Focus bank and today we do serve, commercial and consumer customers were in 47 States now so we're selling all around the country.
We have most of the states covered at this point so people have been choosing to open accounts with us through our online platform and then as you mentioned the B Corp yeah the bank is a certified the court.
[5:58] Have you two things there were What's called the benefits Corporation in the State of Florida and then we also have the B Corp certification on top of that.
Yeah and that's that's kind of unusual for a bank right to have those types of designations and they're fairly new anyways in the marketplace I've noticed with some of their non-bank companies that are not, and your industry they're they're getting those types of designations what was the purpose of getting bad for the for the bank itself.
[6:24] Yeah so purpose for us was kind of two folds I mean becoming a benefits Corporation a public benefit Court in the state of Florida.
That was a you know a legal distinction and it was a choice that we made, to really make a statement to our shareholders are original investors as well as to the public that we were for profit company and you know we're here to make money like any other business but that we're doing it with this stated purpose and that purpose is to provide environmentally and socially impactful lending in the communities we serve, um so that's the legal B Corp side and then and then the certified B Corporation is more of a certification I guess you could call it you know we chose to do that because it really helps to align us with a lot of these other like-minded businesses you know the big ones that people always think of today are you know Ben and Jerry's Patagonia and then if you know all birds the shoe company they're in there another, pretty much of pasteurizing starting to be cork Network so coming out with that certification shows that we've checked a lot of boxes for doing the right thing for our people and for the for the environment, and then it also introduces us to that whole set of like-minded customers who choose to bank with us yeah not smart smart.
[7:40] Marketing and I'm going to say like from my perspective it's you know you it's one thing to say those things it's another thing to kind of actually do them and I know from my.
Our relationship that you guys have embraced the ESOP.
[7:54] As a way to it's not the only way but as a way to kind of meet some of the purpose that the bank has created the mission that the bank is created.
And let me ask you from that perspective as we think about an ESOP and I've got all of my like things in my head about what I would say to this but what would you say like what how does that.
How does an ESOP transaction aligned with the mission in the state and the vision of this of your bank right now corporately speaking.
[8:24] So I would say ultimately a lot of what we focus on as a company.
Is creating opportunities for those parties who may not have them otherwise and you can look at that from a lot of different facets of what we do, but specifically in terms of theesopguy, I think the first thing is this and it's something that as a Community Bank were sympathetic to we're in one of the most consolidating industries that exists and everybody knows this because if you're with a small Community Bank.
[8:55] There's a chance they're going to sell or be acquired in the next few years and that's been continuing for decades, same thing is happening with this smaller Middle Market businesses I think we've seen a lot more I've been a activity and you know we've seen some of these larger.
You know larger buyers start to go down Market consolidate with businesses and you have people who have put their Blood Sweat and Tears into a business for decades, maybe it's a multi-generational business and you know they just they don't have that succession plan in place, for those individuals a lot of times the alternative that they say is to sell two very large competitor is that, mom and pop feel with that business you've been working within that small Regional deal you know when it goes to a national competitor or they're consolidating under you know private Equity or something like that.
[9:45] Impact for the customers as well as an impact for the employees of course.
So I think we're sympathetic to that but then more importantly is what this does for the workers and it you know creates a source of wealth for those people who have been part of that with the with the owner with the shareholders for all of those years and that's what we really love about it.
And I think all of those things are you know if you've been around ESOP long enough you know that that's true like that's that is the intention of the ESOP is such a well balanced approach to.
To doing a lot of different things at the same time in it helps the shareholder helps the employee.
And one of things I would add to what you said is it helps the community I mean when you think about the consolidation problem in am I at least in my head in my opinion.
[10:31] That these larger larger businesses you know they may function more efficiently but many times they leave the local area they're like hey we're going to we're going to consolidate in a bigger Market Place maybe we bring everything into like a larger City like Miami, and they just kind of like that's how they do things and so the community benefits because those jobs are still there.
The customers benefit because the companies are still operating in those marketplaces with the same people the same culture.
And so that's kind of the cool Aid of Aesop's like you start drinking that you're like oh man this just watch out, but you guys do like put your money where your mouth is and I know that because we've done a couple transactions and and I know that you guys are serious about it.
When you think about ESOP lending and the big picture like if you think about nationally there's some big players like big banks are really involved in that as well and.
You know and for you guys because you're relatively small comparatively right.
Um how would you compare contrast your approach to doing ESOP blending with the big guys that do it in there the ways they do it.
[11:36] Yes so I would say from a you know from a approach standpoint how we're approaching the underwriting of the deals is probably fairly consistent.
You know I learned it at a big bank so that's where I got my exposure to this and when this team wanted to.
Look into doing ESOP lending as a facet of what we do we use that approach, but I think that the difference is in being Nimble and being flexible, so you know we're a small team that that the draw back there we can't do huge deals right but I'll put a lot of what we look at is probably right in our wheelhouse as far as loan amounts go, so that hasn't been as much of a problem and then we're open to being a little more flexible I think that, you know we've been willing to push the envelope not a lot but a little bit on term.
Push things out a little bit more and maybe give a you know a little bit of a lower payment to the customer by doing that and and when I say Nimble let you know if that's what's ability and then when I talk about being nimble.
[12:41] We're able to make decisions quickly so.
[12:44] Anyone who's that a large bank I came from that before we always used to think gosh how do they function at these little banks with a loan committee after asked a group of people every time you want to do something but the beauty is.
I talked to those people every single day you know we're in the room or in the virtual room in today's environment virtual groom together every single day, we know what to expect of one another and there's an element of trust there so when I bring a deal to the table they know that Chris has checked certain boxes and really vetted certain things before it gets there, and that helps us get through the process a lot quicker so I think that we've been able to really move through things smoothly which is so important on an ESOP transaction because you have so many moving parts so many parties stakeholders involved and their timelines the last thing you want is a really rigid thanks partner, who is slowing things down or changing things the last minute yeah exactly and we know that that can happen and.
And I think for people this is really for educational purposes I mean this whole podcast is for that so you know and not to say anything negative about a big bank and maybe that's your bank partner and you're really happy with how they're structuring it.
But Nimble and flexibility are important in my head because of an ESOP transaction.
[14:02] Is it is difficult to predict exactly how everything is going to go and being able to build that type of.
Quick turnaround if you and what you guys do well Chris is like if I ask hey are you can you do this.
[14:15] And you come back and say yeah yes we can do it that way it's going to be pretty much like you said and I think that's a part that is important.
That people have to can understand like you don't if you build the whole model you build the whole transaction around with the bankers telling telling you and it doesn't come through like that then that's going to be problematic for people.
[14:34] Yeah that makes sense for sure yeah that's what I'm that's why we always try to get that answered back to you quickly so because you know that you're relying on it.
[14:43] So you're so let's go back on your back I was going to start with this but I forgot like tell us a little bit about your background like how you know you've been a banker for how many years you don't tell us like who you were with but obviously you were with a larger bank before, and why'd you gravitate towards this type of situation or or role that you play it Clement climate first.
[15:03] Yeah yeah so I Yep this is my 21st year in banking.
[15:11] Kind of fell into banking a lot of people I talk to if you ask a banker yeah now that you've been up the industry 21 years you can actually have a beer now.
[15:19] Yeah that's getting Italy terrible joke good we've all the, no I don't know a lot of people who told me they grew up wanting to be a banker so we all just tend to fall into it at some point I had a more of a technology background coming out of college.
[15:35] Walked into a bank that pattern open house going on and somehow got suckered into a management training program when I thought I was going in for a, trying to be a network administrator or something so that's how it goes I thought I'd be in it for a couple of years maybe or year and figure out what technique to find next and.
21 years later I'm still still hanging out here and having a good time so work for a couple of big Banks the big big ones and.
Cut my teeth are starting out did some small business and then moved into more of a like a middle Market position, I really enjoyed that enjoyed the education and stuff but I got to a point where and we've all felt this way as customers and those who have worked with the big Bank have probably felt this way as an employee sometimes it just feel like a number there's so many people hundreds of thousands of employees worldwide and you're just one of those.
[16:25] And really enjoyed the local people I worked with enjoyed the company's overall but really wanted that experience where every day something I did I felt like it was, moving the needle for the company and you just it's hard to have that one of these big organization so I made the move, um to a smaller bag to ask what was it the time of pretty small Community Bank and had a really good time great run there for about six years where I.
Got to watch them just grow like crazy this penguin from billion dollars to forty billion dollars in a six-year run, um which was incredible but they weren't yeah they were growing organically they were also acquiring a lot of Institutions around this the southeast us and again amazing place to work for a great team, enjoyed every second of that and, still in the back of my mind I remember when I got hired by that group I was talking to the guys that founded the bank who were hot they were the ones hiring me at that point I'm sure today if I went and applied with them I wouldn't get that same.
Conversation because they're so you know there's so much more separated from those hiring employees now, but at the time I remember them just talking to me about the history of how they started this little institution had grown it, and it just really spoke to me I've always obviously had the chance to speak with entrepreneurs during my career.
[17:45] And I've always kind of wanted that so when I met the CEO from climate first and told me it was founding the bank started talking with him a little more I just thought man this is an opportunity that in our industry doesn't happen often there are I think.
[18:01] It's probably less than 50 new banks around the country right now you know that have been opened in the last four or five years so it's a small list and when you see that opportunity it's.
One of those things where you want to take it so that was really what brought me here and I also the mission I mean it's just thanking as banking for the most part so find a bank that really had this.
Unique Mission and the read I got some pop and everybody there was that they were really going to live up to the mission that was just attractive to me.
[18:31] Now I and I think that as you get older you know when you first start your career everybody kind of like I got to figure out what I'm going to do to pay my bills.
[18:38] But everything kind of settles down and you start thinking about the like what am I actually doing with my life what I love about the south world is you are making a difference because years and years from now there's going to be people in these companies that you guys have financed that will.
Employees will be like oh yeah they actual start seeing the value the wealth that.
Um that got to them because you went through this process of actually doing something so as long as you're going to do what you're going to do I mean why not.
Do it for esops so yeah great yeah so cool so as we go into the properties that process so when the things that I want to make sure people get like, because they're always asking questions about okay so if I'm going to do my transaction how much will the bank lend, what is a typical structure let's start at the kind of the beginning of that for you guys when you're looking at a new loan opportunity for an ESOP transaction itself what are some things that you're looking for, categorically from a bank standpoint to make sure that you can check the boxes and say you know what that's a that's a deal we can do or this is not a deal we can't we can't do that deal so how do you guys go about that.
[19:46] Yeah I would say the thing that is probably.
A little bit different with an ESOP and versus any other type of financing that I've done over the years is in an ESOP I start with.
[19:59] The qualitative side so typically it in any transaction the first thing I do is look at the numbers and the numbers check then I'm like okay tell me the story.
And that's where I really started to understand the background and the why behind it.
But with an ESOP I mean you know frankly you have a lot of you have a lot of smart people involved that the numbers are generally going to work.
And the numbers aren't really.
Where two things to me can get hairy with an ESOP it really is the story so I like to know that first I think I want to know.
[20:33] Who the seller is seller or sellers are why they're choosing the ESOP over other options.
Background on the management team that will stay in place post transaction how long they've been there you know what does the makeup of that team look like.
What does the industry look like sometimes you you find I say a lot of times you find that the industry is one of the reasons were that an ESOP may make the most sense to you know so that that's always good to find out.
[21:04] You know and then as you as you start to uncover the answers to those questions I think then you start to lead more into the financial side no case now I want to really understand the financial behind this, and make sure that the deal works but you know first and foremost is understanding the why behind the transaction and it's so important to know what that team looks like because that's what I'm going to be working with, business forward.
Um and what I always try to do too because again we're unique Bank we have a unique platform and the feels we've been on Phil you've been great about this as well.
Is Talking with that customer and making sure that we can meet all of their needs do we have the right technology that posit products all of those different things that they need be on the loan because the loan is just one piece of to it and.
You know the loan will eventually be paid off but ideally that customers with us forever so we want to make sure that we can meet all of those needs that they have outside of financing to.
I think that is a great answer.
[22:08] In that the you know not break it down a couple ways in and I kind of agree with you and this is one of the reasons actually I got out of banking is because I felt like.
[22:18] The banks in general not like you guys but in general they were just so.
There so I don't know geared around maybe The Regulators right the OCC you know and all that all the like.
You know if it's if it's not this loan-to-value or you know and you guys have your jargon so fixed charge coverage ratios, debt service coverage ratios or you know all of the things that like just financially and call in quantifiably right.
That those numbers I get it like they you know they either going to work or not going to work right but what makes it great ESOP I believe like what makes a great loan with a client is our customers like.
Is this is the quality that business and if you go back and I was like.
[23:03] Gosh I started in banking when I was like right out of college in 20 like 23 years old it was really a new unite I just kind of get my head around it but one of the things that my boss told me is like.
In every business is going to go out of business at some point you know but it's the character of the person that you're lending money to that matters and and I think that that resonated with me so much at the beginning of my career and all through this doing ESOP work so I'm going to glad you said that because I think that you know you know like for instance I could have a the character of the selling shareholder.
Doing an ESOP transaction can look at hey I could probably get more money for this in some cases for the valuation but I don't need that.
And that happens a lot of these up transactions because they're thinking about the employees the sustainability that company the management team being successful they're not just thinking about like what they can walk away with that's I would say predominately most, deals that get put together so so I love that I love that idea of just getting to know the story behind it before you you jump into a lot of the you know.
The stuff you're going to have to do the we're going to get to like the underwriting on the numbers because it has to those have to fit together right but I think that's really important and you can do that because you are, add a smaller bank I think a larger banks have unfortunately there just under the way that their policies are credit you know credit policies are and.
[24:26] Yeah well that's bigger they have to be more.
It's hard to make exceptions so they have to have a consistent policy and and truthfully In fairness they have to deal with a lot more regulatory scrutiny than we do at our size so that's that comes back to them and wellness for us.
Now one thing I want to kind of point out that it is really important for people and this might be completely obvious to some people listening but whatever you do if the bank is going to be a new bank is going to finance the transaction so like in this case climate first comes in they're going to they're going to finance the transaction they're going to be the bank.
For the business so that means that taking out everything credit-wise they're going to have the depository accounts they're going to have treasury management the whole relationship has to change and you can't just take, one thing people ask me what can I just do the funding or Finance it with what them and like that's not the way it works because the bank has to have UCC filings blink it leans on everything.
And so keeping with that and this is kind of what you're saying and this is what I philosophically believe.
Is you don't structure a transaction you structure a relationship that has a transaction in.
[25:36] And if you don't if people don't think that way then then like you said down the road I mean this may not work and I love that year beginning with the end in mind with hey can we meet all of the capabilities requirements to this company's going to have because.
That would be bad right if you're getting into it and you're like you know absolutely yeah yeah they we and frankly a of all loan to its ESOP sir.
Typically pretty short term you know it's not a 30-year 25-year real estate proposition it's a.
[26:05] Four to seven year deal probably in a lot of cases for people yum yeah.
And you know so when you think about that the debt will be gone before you know it but the rest of that relationship is there.
So that's a long that's a long time to go if you don't have everything you need said definitely try this squash that stuff up front make sure that everybody is covered make sure everyone's comfortable to I think that's just really important when you get one of these, we had to get we say we always these up transaction but you're right the eat that the transaction is just the beginning of the relationship.
[26:41] Well let me ask you from a like a another standpoint if you see an opportunity to do a deal where would you guys not be able to do the financing what categorically would you say you're like oh this isn't going to really work for us and I know it could it could be in the numbers.
Cash flow wise it could be different things what would you say generally speaking where you'd be like I just can't do that deal.
[27:03] Um you know I think so if you're talking about what say this the more of the soft the soft tissues that we could see for us, one of them would just be uncertainty about the future of the industries sometimes you find really mature Industries but there's a lot of things changing around them, and you just don't know long-term and again we're looking at it Beyond just can this company pay us off on a 5 or 7 year theesopguy transaction we're saying it will this company be around long term which of course.
Being an advocate for the for the workers for the you know the beneficiaries of the platform that's important as well.
So I would say that's something that we always look at for sure you know we want companies that obviously there's good character behind them all of those.
All those normal things that I think anyone any lenders looking at in any and Spencer should be looking at of course like you mentioned from the from the.
Financial side cash flow shortfalls sometimes really just really bumpy cash flows so without explanation if you're seeing, lots of high swings up and down not just Top Line but maybe the profitability the net profit margin is swinging a lot of two without explanation those are things that, unless you can get a really, good story behind it and understand why it's happening it can be difficult sometimes I mean that as an example I had a great client years ago who.
[28:31] If you were just a banker looking at their numbers you would have said gosh every four years they just kill it and then they kind of stagnate for a few years after that but they were and they were construction so you would never put this together but they were a fabricator for, news newscaster sets stage sets wow that's interesting yeah so they yeah so the news channels.
All around the country the big ones that we all watch they would redo their sets during election years because those are the years they got the most viewers so yeah so, so when you started to look at that you'd say okay well you know six months before the beginning of the election news cycle this company just explodes and it carries them for three or four years, and once you understood that story it's like okay that's that's okay like there's a reason behind that and as long as we believe there's going to be news coverage of Elections we can we can understand the predictability of that, but without the story I would have never know yeah and that's you can design your cash flow around that or your repayment your loan Cycles around that so that's really I think that's just smart banking because sometimes, thinkers of look at something with a car that doesn't work so let's just throw it out but if you're willing to take the time to get to know companies and you know and there's obviously sometimes it's not going to work.
[29:43] When you when you look at some of the details so so some people ask questions like.
Of my transaction if I'm going to sell my company whatever say for 10 million dollars.
How much would the bank normally but let me borrow and then the rest usually gets put into a superb what we call subordinated seller know.
And so your piece is the senior debt so of that normally.
How would you how would you answer that question for people I mean I know it kind of depends on the on the cash flows and things like that but how would you get comfortable with the actual number itself.
[30:14] So generally we've used a number of usually about 70 to 75 percent of the transaction value is what we're willing to finance and to your point though in most cases.
It's really driven by the cash flows more so than that number so we'll put that arbitrary 75% out there and the idea behind that is that we like knowing that the seller, with that subordinated Cellar no still has some skin in the game they have some reason to see it through make sure that the company continues to perform well over those years because there, their payout is responsible you know where is dependent on it that gives us some some relief is a bank to know that that's the case.
And at the same time again I think it's probably not the norm that we see them go right up to 75% the the end Advance rate the loan to cost is typically somewhat below that because it's driven by the cash flows of the business.
[31:13] Yeah which which I mean the smart structure is you can't you can't get too much over what the cash flow could show to pay back even with the tax benefits.
Being an ESOP if you're an S corp you're not going to pay taxes so you at all that back into the equation.
You only have so much cash at the end of the year each year to pay off that piece of the debt and.
So yeah I like what you guys what you do so which is something I really am, I appreciate and know my team does when we look at a package that you've worked on is there it's fairly conservative on the forward forecast.
[31:48] And I we understand that that you're putting that together with the idea in mind that this company really wants to pay down the debt sooner than what is scheduled by our note.
And you know one wheel of that banks that you think.
Thanks of course what they want to keep interest paying as long as possible but we also like seeing that a debt is being paid as agreed or better and on top of that that makes the conversation even easier.
[32:13] That borrower comes back to the table that's okay you know we paid it down and.
Three-quarters of the scheduled time can we do another draw another Advanced to continue to pay down that seller note aggressively that's something we love to do and love to have that conversation with people.
Yeah because then the first piece of that debt you've got some credit history now and you see this this is actually working and you get a lot more comfortable with, you know the actual reality of what's going to come because forecasts are like so hard right I mean we're like anything can happen in the future.
But being conservative I think it's really important because sometimes it's not going to work out way people think you know not all the time so.
[32:56] When you when you look at a non-recourse deal because it most Aesop's that we all do our.
No guarantees no personal guarantees and for some banks they're like no way we absolutely have to have the guarantee how do you guys how do you guys get over that hump with your credit people.
[33:12] That's um that's hard for any bank and I will tell you the typically this smaller the institution the harder a time you'll have with non-recourse it indigents just speaking in general if you were to bring up real estate loan to a small Bank.
The chances of getting non-recourse or are slim did not with most most bangers around the country that are smaller institutions with an ESOP we know that.
Just kind of the nature of what it is if it's a it's a hundred percent ESOP transaction so it's something that where you have to just really get comfortable with that company.
You know the truth binded the these transactions is we're taking a pledge on stock as our collateral but if the company.
[33:55] You know performance deteriorates to a point where they can't pay their loan anymore.
That stock is not worth very much to us you know so I know Lee is a it's a big leap of faith that's being taken but it's also a calculated leap of faith radio it's not we're not just blindly jumping in you know we're really looking at the transaction and.
[34:15] Very out I'm sure you have a couple of Bankers out there listening because I know I've listened in before but the default rates on on Aesop's are extremely low and and in fact lower than, most other types of cnri or commercial industrial lending out there even during the Great Recession, so I think that the key is just use the same prudent underwriting that you do with anything else and you're going to be fine yeah now I think you're I think you brought those statistics.
[34:42] Some other thing we did so I think he said it was like the default rate for an ESOP companies like, point eight or something like that or I can't remember exactly 2.2 yeah 2% 2% which is Extremely Loud this crazy right on a in a good market like in a recession I think it's going it's going over one but still.
[35:02] ESOP 29s up company they're going to they're outperforming other companies from a obviously from that measurement of lack of default and then there's other measurements to of, The increased wealth that they create the outperforming profitability wise there's a lot of other kpi so you can look at but but that's pretty, and that's something that I think with with banks and again I'm picking on Bankers because I was a banker I mean you you know what you know.
And if your bank's not comfortable they're not comfortable with it but I mean it is a, I think they're very good opportunities out there in the market you know as far as these types of deals if they're if they're put together correct you know I agree and I think maybe the, just like anything else right if you go and look up the local pest control company online you don't see a bunch of people, leaving reviews about how great a job they did it's the you hear the bad news you see the complaints and yeah I think if you you know if you go out there and try and dig around sometimes outside of Industry sources.
As your people's take on an ESOP you'll hear about the one that didn't work out or they'll you know the one that wasn't set up properly and the issues they had and you know that can scare you a little bit so you really have to I think talk to people have been through the transactions talk to companies that have successfully use the ESOP isn't as a vehicle for for succession, you know what you'll find is it can be a one of the best transition options and then.
[36:27] Will we see more I mean of course I did just like every other statistic that shows the baby boomer generation large generation multi-year CNN multi-decade generation retiring, I think we're going to continue to see.
Transition of those businesses that these people started and this is going to be one of the ways that we see it happen absolutely I think that's the big that was the big message you know when I first started this in 2020.
That's trying to get people to understand this is coming like this this trend towards companies looking at this as a viable option is coming in and now four seasons in I mean I'm seeing it all over the country with this podcast and just with the deals that I'm looking at you know it's, and that makes me think of another question you guys do deals outside of Florida or not just curious.
[37:18] Um we're starting to do some stuff outside of the Fleur de yeah for when we first started the bank we were restricted to Florida and slowly but surely now we're starting to test the waters a little bit outside yeah we'll be like fully Nationwide after the middle of next year so we're looking forward to that well maybe colony of got stuff going on that will need will need help on but the point is that one thing about Aesop's in the industry is like we all we all work, typically these are professionals whether you're doing what I do sell-side advisors the attorneys the trustees that I we're all working everywhere it's like even though we're both in Florida.
There's stuff happening all over the country so it's it I think that's a good part like if you guys can stretch out to that I think there's especially with your digital banking you know and.
The fact that we can do everything technology-wise anymore from anywhere really it's just a good opportunity and I think you guys have a good niche of doing that.
[38:14] We're excited for that for sure yeah so looking at I guess you know as we close out a little bit, one of the things I like to ask people just is in general what sort of advice if somebody's thinking about doing an ESOP and from your professional you know experience because I think you bring a lot to the table.
And they're thinking about it an ESOP transaction just big picture or things like you've seen like what would you advise them to be thinking about or what kind of questions would you be thinking you know you know having them ask either of themselves.
Their management team or really how you know how would you advise people to be thinking about that if they're going forward to an ESOP transaction.
[38:53] Yeah I would say enough in a lot of the cases either esops that I've.
Have the ability to have the op in the opportunity to finance or just talking to people who have been through the process, the key thing is really thinking about what you as an owner you as somebody who a lot of times of founder of a company what do you want it to look like, when you're gone.
[39:21] And for many people they don't have the option of a child in the business as a sole successor that's some do but a lot do, um they may have people who are in the business with the who help them build it all those years but if they were really successful and build a really large company, it may be out of reach for that next individual or group of individuals to just buy it outright you know SBA financing has its limits and, when you're talking about a 50 100 million a year Revenue company it can be difficult for them to find ways to transition that on their own, so thinking about the you know you want that name to be around you want that culture to stay there before those employees that you helped to you know cultivate Mentor over the years, um that's where I think people start to really think about an ESOP you know the key is.
[40:14] Just like you know any other major decision in your life have the right trusted Partners around you and start early with those conversations I don't think it's ever too early I would assume, um and I know it from talking to you is there's instances where you've probably started a conversation with someone a couple years ahead of a transaction before it came to fruition and there are so many so many moving parts so many things to think about, that there's nothing wrong with starting a little bit earlier yeah I'm taking the time to really think through things yeah I think I think too and I think what you said is really good.
Is helping people think about like their Partnerships in like you said the advisers that they're going to work with and that's part of the reason we do these interviews is to help people know kind of people like you and what you guys do and it's, for some people they don't know.
[41:03] There is way are there ways to do the deals differently and sometimes they're just they're only hearing from One Source right and they're like oh that I thought I couldn't do that and now they start to get more information that's and that's the spirit of the podcast is like.
You know let's just talk about whatever it is and and help them to get to that to that next step with the motivation that mean really just want to help people become, pain up the if it's right help their companies become Aesop's because I think they're just a great thing so I appreciate your the part you guys play and certainly the part you're going to play in the future I think it's, it's really really well you guys do a really really good job if people want to reach out to you how would you say they should find you I mean I don't want to give him your phone number but.
[41:48] Yeah no yeah it's everything is out there unfortunately or fortunately and unfortunately for me but you can find me on LinkedIn very easily sure awesome look for Chris cucci there and then if you know my climate first bank.com is our website cool.
My pictures on there somewhere and my email so good good yeah I already talked with anyone anytime all right well Chris thank you for your time today I really appreciate it like it was just fun to talk through some of the things and looking forward to doing more work with you guys as well.
Yeah same thanks for having me it's good to connect with you again so, great so for everybody else thank you for listening today or watching today we appreciate it check out our website again at journey to an ESOP.com and we'll look forward to our next step on this journey to an ESOP.