ProfitStars Client Bulletin Commercial Lending Update February 2011

Transcription

1 ProfitStars Client Bulletin Commercial Lending Update February 2011 WELCOME BACK! Welcome back to the ProfitStars Commercial Lending Solutions bi-monthly Client Bulletin! The Client Bulletin is designed specifically for ProfitStars Commercial Lending Clients. We hope to bring you insightful, timely and pertinent information to help you make the most of your current lending program and bring the most relevant information for you to share with your loan officers, internal lending personnel and merchant customers. Table of contents Letter from Managing Director 2 Industry Trends 3 Credit Corner 4 Recent BusinessManager Fundings 5 Recent BusinessManager Fundings 6 PEC Register Today 6 BusinessManager Training 7 Regional Manager s Perspective 8 Meet the ProfitStars Lending Network 8 Lending Network Case Study 9 If you missed the November issue, please visit the Commercial Lending Online Knowledge Center at discover.profitstars.com/commercial-lending-expert. We d love to hear your comments and feedback, so please take a minute to let us know your thoughts. You can contact us via at sales@profitstars.com, or by calling Thank You and Enjoy! copyright 2011 Jack Henry & Associates, Inc. ProfitStars is a registered trademark of Jack Henry & Associates, Inc.

2 Dear Valued Client, These days we find that most of our banks have money to lend, but they re having a difficult time finding borrowers. Those businesses that have weathered the economic storm seem to have tightened their belts, held onto their cash, and aren t interested in borrowing at the moment. However, the FDIC recently reported that in this past quarter, C&I lending is showing signs of improvement for the first time in two years. Through our BusinessManager program, ProfitStars provides analysis on industry sectors that are seeing expansion and those that expect growth in the near term. Many times, we may see regional growth in a sector that may not show up in national trends. Your ProfitStars Business Development Manager (BDM) works hard at understanding how these national trends can affect the opportunity for your bank in your market. Your BDM communicates with his peers to understand how a particular region may be enjoying growth, and works with your lenders to capitalize on that opportunity. It s just one of the many ways we bring value to our relationship with you. Whether this increase in C&I lending is a sign of improvement or just a bounce remains to be seen. However, one thing is clear: the competition for qualified borrowers is getting fierce. BusinessManager allows your bank to differentiate itself from other lenders by adding a high touch service to working capital borrowing. With BusinessManager, you are able to infuse working capital into a borrower s business while adding a level of discipline and control that a line of credit just doesn t provide. With BusinessManager, it s not just about competing on price. As competition for business continues to heat up, many banks find their margins getting squeezed even tighter than before. Our new Margin Maximizer suite allows you to price loans to a target ROI, while considering all aspects of the loan, not just the interest rate. Margin Maximizer also allows you to price the deposit relationship with the loan or separately. It is a wonderful tool for lenders to manage the profitability of their portfolios. CEOs can utilize Margin Maximizer to manage the pricing of all of their loans and deposits. Ask your BDM how we can help your bank compete this year. Todd Shiver Managing Director Lending and Website Solutions ProfitStars ProfitStars Client Bulletin Commercial Lending Update February

3 Industry Trends Economic Outlook: Business Re-Growth Will Be the Story of 2011 Key industry sectors such as manufacturing, wholesale and transportation are likely to see measured growth in the 4-6% range throughout 2011 as the nation continues a slow recovery. While the volume of unemployed workers will continue to restrict more robust growth, there will certainly be opportunities for banks during the year, and bankers should expect an increase in C&I loan demand from small businesses. Some of the bright spots for the year will be re-growth in the auto parts sector as well as machine tool and industrial machine manufacture and wholesale. This process of growth toward pre-recession levels will be supported by the fact that companies have been shedding inventory for the past two years, and will need to replenish that as demand returns. The key to a long term expansion will be progress the country can make in the re-employment of our work force. To put it in perspective, if the US economy were to add 200,000 jobs per month, it would still take more than four years to move below 5% unemployment. We believe that the sheer number of unemployed will result in a re-emergence of entrepreneurs as well as re-training so that laid off workers may transition into new industries. As with every challenge, this represents a significant opportunity to emerge stronger than before and to re-shape the small business market place. The ProfitStars Lending Solutions team is already seeing movement in all of these areas, and expects that trend to continue throughout the year. Future newsletters this will focus on specific opportunities for our BusinessManager clients in key industries. The Transportation Sector is On the Move While industry analysts are predicting 4-5% growth in the transportation sector during 2011, it will still take until 2013 to reach the high-point of domestic freight shipments that we saw in Success in this industry will be defined by how business owners respond to the following challenges: 1. The price of equipment is rising. For example, the cost of a new Class 8 tractor has increased by $25k in the last five years, mainly due to new emissions standards. 2. Used truck prices are also rising, up 4% in recent months. The average price of a used Class 8 tractor is up 35% since the 3rd quarter of Driver shortages are expected to be problematic during 2011 due to new CSA 2010 regulation which includes driver identification requirements and HOS regulations. 4. The industry has seen record low production rates for new trucks. Manufacturers produced 133,000 trucks in 2008, 95,000 in 2009 and approximately 110,000 in New dry van orders are up 79% as of the October year over year statistics. During 2011, we expect these industry dynamics to result in an opportunity for A/R related financing as well as equipment/rolling stock loans and leases. The industry includes approximately 65,000 businesses and annual revenue of about $140 Billion. On average 24% of a trucking companies assets are made up of accounts receivable, and the industry collection period averages just under 30 days. The transportation sector currently makes up between 12-15% of BusinessManager funding in the US. While the sector grew approximately 4% in 2010, it is interesting to note that the sales from existing BusinessManager clients in this sector grew by 9%. If you are interested in obtaining more information regarding the industry or underwriting a specific opportunity, please contact a member of our Risk Management team as well as your Business Development Manager ProfitStars Client Bulletin Commercial Lending Update February

4 The Most Important Risk Indicators for Banks When Funding Accounts Receivable BusinessManager banks funded just under $2 Billion dollars in accounts receivable during With this much money moving through the pipeline, it helps to know what to look for when you are in charge of credit management at your bank. Our studies of insurance claims consistently point to dilution rates as the most important indicator of a brewing crisis. In a recent study of claims that occurred between 2007 and 2009, more than 90% of the relationships experienced a dilution spike of over 15% (single month) at some time during the six months before the problem surfaced. This dilution includes the monthly percentage of credit memos and repurchased receivables combined. Dilution can be tracked in the trends report data in each version of BusinessManager. After dilution, the second item that stood out in our analysis was the risk associated with concentration accounts. It was apparent that large debtor concentrations can become a problem quickly, leaving less time for the bank to see it coming. For this reason, we typically recommend the bank take higher reserves on concentrations, especially those that exceed 25% of the debtor s total accounts receivable. Sound verification practices are also important for these as they are for all accounts. With proper risk monitoring practices in place, your BusinessManager portfolio should be one of the safest in your bank. We still consistently see banks taking the same loan loss provision with the program that they take on other C&I activity. Given the economic re-growth taking place in 2011, businesses are more likely to utilize short term working capital facilities. In that environment, it s nice to have a program that provides finger tip access to so much A/R related information. ProfitStars Client Bulletin Commercial Lending Update February

5 BusinessManager Funding Announcements #1 Business Description: Five year old trucking firm that is primarily a Less than Truckload (LTL) carrier. Lead Source: Referral from a former BusinessManager banker. The banker s wife is the CFO for the company. She was looking for a financing solution for the growth opportunities that were now possible. Benefit to the Business: Cash flow to support growth. Two new national contracts. The company has grown 19% in the last eight months. 2% discount offset by taking advantage of new opportunity New relationship with a bank with experience and focus in transportation Expanded fleet by 10% with new bank Benefit to the Bank: New bank customer Anticipated yield on BusinessManager line of 10.5% based on 35 day turn of accounts receivable Anticipated average core deposits generated of $350,000 with average anticipated outstanding BusinessManager line balance of $1,200,000 Risk mitigation utilizing Account Verification Services Equipment financing of $2,200,000 #2 Business Description: $2.5M Manufacturing company producing cutting implements. Lead Source: Four-year existing bank customer on a revolving line of credit. The customer struggled to manage their line during the past year. The line was fully funded as the business attempted to attain growth opportunities while trying to offset past losses. The business was close to COD terms with suppliers. The bank couldn t increase the line. The bank s relationship with the business was strained. Benefit to the Business: BusinessManager reports provided better management tools to help the owner run the businesses. Business was able to pay off the line of credit, catch up on past due payables and negotiate quick pay discounts going forward. Business has been able to leverage immediate cash flow to go after new opportunities, leading to a 27% projected growth to bottom line in the first year. Benefit to the Bank: Bank was able to graduate the credit from the watch list. Turned evergreen, marginally profitable line of credit into an annual yield of 9% based on average AR turn of 50 days. Anticipated average core deposits generated of $150,000 with average anticipated outstanding BusinessManager line balance of $350,000 Risk mitigation utilizing ProfitStars Account Verification Service (AVS). All information provided is based on information provided by the bank and merchant. Actual performance results may vary. ProfitStars Client Bulletin Commercial Lending Update February

6 #3 Business Description: Engineering firm providing services and solutions to shipping companies and governmental entities relative to mapping of undersea waterways. Lead Source: Three-year existing bank customer on a revolving line of credit. Line size was always maxed out during their seasonal period (May-Sept). Business was late with payments and didn t manage cash well. As growth opportunities emerged, they needed more working capital. The bank couldn t expand line due to inadequate cash flow coverage and cash management discipline issues. Bank had a good relationship and wanted to keep the customer in house. Benefit to the Business: Enhanced cash flow assistance to enable capture of growth opportunities. Automatic cash management discipline installed as a standard aspect of the program. The business was able to continue their relationship with the same loan officer and at the same bank they enjoyed. Paid off past due equipment loans at the bank. Paid off evergreen line. Benefit to the Bank: Retained a quality bank customer. Turned evergreen, marginally profitable line of credit into an annual yield of 16.13% based on average AR turn of 38 days. Anticipated average core deposits generated of $73,100 with average anticipated outstanding BusinessManager line balance of $375,500 Risk mitigation utilizing ProfitStars Account Verification Service (AVS) along with Coface insurance products. All information provided is based on information provided by the bank and merchant. Actual performance results may vary. Power Your Register Today for the ProfitStars Educational Conference Tuesday, March 8 - Friday, March 11 Hyatt Regency Chicago, IL A small change. A key addition. Sometimes one seemingly modest enhancement can impact your performance and improve your ability to not only compete in the marketplace, but gain a performance advantage over your competition. The power of improved performance can create a ripple effect that spreads incrementally across all areas of your business. Our 2011 Power Your Performance educational conference will be a refreshing opportunity to learn from product experts, industry peers, top vendors, and insightful guest speakers. You ll also have the chance to take in the latest products that are making waves, view demos, and much more. For the first time ever, we re also including a new power-boost educational track for our ipay clients. What key change can you make to powerfully impact your institution or organization next year and improve your performance? Discover that and more at PEC Registration is now open at Or ask your ProfitStars sales rep for details. We look forward to seeing you there! ProfitStars Client Bulletin Commercial Lending Update February

7 TRAINING 2011 Lending ProfitStars Solutions Client Bulletin Training (Brentwood, TN) There are several key factors that result in bank success when offering the BusinessManager program. Near the top of the list is training of the BusinessManager Process Coordinator and Program Director. We know that our clients often move new personnel into these positions and encourage you to have them trained at our Brentwood, TN, facility as soon as possible. This two-day event will provide your employees with strong working knowledge of our systems and how to deploy them in the field. The Program Directors will also learn the best practices associated with underwriting, pricing, documentation and credit management of a BusinessManager portfolio. If you would like to enroll yourself or an employee of your organization, we encourage you to consider one of our 2011 training events listed here: Training Dates January May 5-6 September 8-9 February 3-4 June 9-10 October 6-7 March 3-4 July 7-8 November 3-4 April 7-8 August December 1-2 For more information regarding BusinessManager training or to register for a seminar, contact the BusinessManager training department at (option 1, then 2). Commercial Lending Update February

8 Regional Managers Perspective Maximizing the Benefits of Your BusinessManager Resources Knowledge is a significantly valuable resource that sets ProfitStars apart. Considering the different geographical markets and industries represented by our Business Development Managers, we seek to maximize this depth of experience as well as the shared expertise from our community bank partners to better position ourselves in serving businesses. In addition to this field experience, we subscribe to multiple industry resources to explore economic information on specific industries (using NAICS and SIC codes) as well as geographic information such as specific industry information for a particular state. The data provided is consistently updated and available through your BDM. It is likely your BDM has a recent report on hand, so please ask them to review what they have with you as an example of this resource. We also encourage you to reach out to the other BusinessManager bankers you have met through our meetings, such as the upcoming 2011 ProfitStars Educational Conference in Chicago. The peer-to-peer interaction is invaluable, especially considering each individual s knowledge and expertise. As you can imagine, we have banks that specialize in various industries such as transportation and energy. I have yet to come across a BusinessManager bank partner who was not willing to share their experiences. Please utilize the resources you have available whether it s from our BDMs, industry analysis, or the peer-to-peer interaction of other BusinessManager partners. Have You Met the ProfitStars LendingNetwork? From time to time, creditworthy business customers face financial hurdles that may not be met by traditional banking products. With LendingNetwork from ProfitStars, these commercial customers can find support through creative funding strategies, while financial institutions can continue the customer relationship without the risk of losing out on future loan and deposit opportunities. ProfitStars LendingNetwork offers alternative financing from a group of more than 30 of the most dedicated, responsive commercial lenders in the industry. With this program, banks and credit unions can safely retain a customer s deposit relationship, compete for future business from companies that do not currently meet credit requirements, remove problem lines of credit from the balance sheet, and receive referral fee revenue. Our dedicated LendingNetwork provides options for a multitude of industries and loan types that may currently fall outside of your comfort zone. Some of these include commercial, medical, and construction factoring, asset-based lines of credit, purchase order and inventory financing, equipment leasing, and commercial real estate financing. LendingNetwork allows your financial institution to: Retain a business relationship without risk of loan losses and without losing deposits to a local competitor. Incubate a loan for an eventual return to a traditional bank product. Remove criticized, classified, or problem loans from your balance sheet. How It Works Your financial institution simply refers businesses to the LendingNetwork if they fail to meet criteria for in-house financing or if their request for financing is something that may require specialized products ProfitStars Client Bulletin Commercial Lending Update February

9 LendingNetwork Case Study Valley Bank, Roanoke, VA The LendingNetwork partners assume the risk and provide a variety of financing options available. Your financial institution receives referral fee revenue and retains the possibility of a future credit relationship with the customer! Senior management contacted the Lending Network about possibly moving some loans that the Bank was concerned about from a credit quality standpoint. Most of the businesses were located within industry segments which had been hit hard by the recession: apparel, building materials, and manufacturing. Since the economy was still weak in these areas, the bank was hoping they could incubate these loans with other lenders but didn t want to risk losing significant deposits to another bank. That s where the LendingNetwork stepped in. Because the LendingNetwork has a variety of non-bank lenders who aren t interested in deposits, Valley Bank felt secure and was able to bring multiple loans to the table. Over the course of the summer, a pair of loans were moved to these alternative lenders, freeing up almost 4 million in assets for the bank. As an added benefit, the businesses got additional working capital that they wouldn t have been able to receive from the bank and are executing turnaround strategies. Recently, another two loans have closed transactions with LendingNetwork partners resulting in another million dollars in freed-up assets for the bank. As a result of the newly found leverage, the bank has been able to capitalize on a renewed BusinessManager strategy and has recently funded one new loan and has several others in the pipeline. Because the experience has been so positive for the bank, they are continuing to send over opportunities which may currently be a better fit for the LendingNetwork and should have even more success in the future. Contact your BDM for more information on utilizing the LendingNetwork, or download the product brief here. ProfitStars Client Bulletin Commercial Lending Update February

10 Resource Center FREE Professionally Designed Marketing Materials at ProfitStarsDirect.com As a ProfitStars client you have free access to a full online library of professionally designed marketing materials. Whether you wish to acquire new customers, or cross sell your current customers, you ll find numerous resources to help you do just that. Through ProfitStarsDirect.com you can download an unlimited number of materials at no cost and send them on to your local professional printer for customization, printing and production. You can choose limited customization and printing delivered directly through ProfitStarsDirect for an additional cost. Simply visit ProfitStarsDirect.com and register to request your unique username and password. Within hours, you ll receive an with your user information. Once you re logged into the site, you ll have access to product sheets, a tri-fold brochure, statement stuffers, print advertisements, and much more! If you haven t already, you need to visit our online resource specifically designed to share the latest information, industry trends and events for Commercial Lending Clients and prospects. WHAT: The Commercial Lending Online Knowledge Center is an online portal destination to showcase best-of-breed technologies for commercial lending and to present timely industry-wide information, bringing both prospects and current clients the most current market information to their fingertips. It also acts as an up-to-the-minute lead capturing source to ensure that an interested prospect who visits the site will receive a timely response from a ProfitStars account executive. Content available on the Commercial Lending Online Knowledge Center includes industry articles and current events, as well as product-specific information including video demonstrations, case studies, press releases, special offers, and much more. WHY: WHO: WHERE: Banks are confronted with regulatory pressure that encourages portfolio diversification while also pushing for CRE loan limitations. ProfitStars has organized a central repository of both industry and product-specific resources to present best practices for lending efficiently without sacrificing quality or performance. The Knowledge Center enables financial institutions to analyze their own lending practices, and then leverage the available informational tools to learn and implement new ones moving forward. The Online Knowledge Center is targeted for financial institutions of any size interested in moving beyond traditional lending strategies. This includes learning how to diversify their current lending portfolio or expand their commercial business base by bringing in new deposits, growing earnings and enhancing asset quality. Visit the Online Commercial Lending Knowledge Center today at: ProfitStars Client Bulletin Commercial Lending Update February

11 Loan Officer Briefing Series Our Lending Solutions team has recently completed an update of our Loan Officer Briefing Series. This series includes five training modules that are typically delivered one at a time to lending officers and branch managers during morning, lunch or afternoon events lasting minutes. Your BDM and Regional Manager are equipped to offer Modules 1, 2 and 5. Our Risk Managers often conduct Modules 3 and 4 in conjunction with portfolio reviews. Whether using these materials or other specific training topics, we encourage you to use our BDMs as a training resource for the program within your bank. If you would like to review the content of the Loan Officer Briefing series, please contact your BDM or a member of the Risk Management team. The five modules are: 1) Product Overview 2) Marketing 3) Monitoring 4) Insurance 5) The BusinessManager Advantage (Cash Flow Solutions) ProfitStars Client Bulletin Commercial Lending Update February