Executive Brief Maximizing Commercial Loan Income with S&P Commercial Loan Pricing Service 101
Introduction Malvern National Service and Standard & Poor s Partnership Malvern National Services is a consulting and professional services company serving the community bank market. Standard and Poor s has formed a partnership with Malvern National Services to introduce S&P s highly successful Commercial Loan Pricing Service to community banks. The service enables community bankers to obtain the optimum levels of pricing on their commercial loan portfolio due to S&P s market intelligence information and support services. The service consistently delivers excellent results with every bank client and supports over 5,000 loan officers in the United States. A Great Opportunity to Maximize Commercial Loan Margins Commercial Loan Pricing in the mid-size to small commercial loan market lacks transparency to dependable pricing information compared to other debt markets. Bankers usually determine their own pricing strategy that is generally derived from cost of funds, relationship valuation or personal knowledge; however this is done without any comparison to comprehensive and objective market pricing information. S&P experience has found that most banks have a high percentage of lenders who consistently price both new loans and renewals under the market. Banks that use S&P s Commercial Loan Pricing Service generally find their lenders improve their net margins between 10-30 basis points after pricing closer to the market. This is accomplished without losing business nor degrading quality of the loan portfolio. Comparison of Lending Teams Before Using S&P Pricing Service Pricing Based on Comparable Factors Interest Spreads Loan Fees Adjustments for Risk Loan Type & Structure BPS 2
How the Service Works The Commercial Loan Pricing Service is delivered to each bank with data that is tailored to the bank s specific markets and organizational structure. The following deliverables are included in the service. Creating Pricing Guidelines for Individual Markets The Commercial Loan Pricing Service provides pricing guidelines that are aligned to local markets and business segments. S&P updates the pricing data every 30 days which ensures lenders get current market pricing and trends. At the same time, the pricing recommendations are complementary to the bank s existing pricing and profitability guidelines. Deal-Specific Renewal Reports for Loan Officers Management-Level Analysis/Reporting Each month, loan officers receive reports drawn up for their own portfolio and markets. The loan officer reports include updates on the market interest rate spreads and fees adjusted by risk rating for loan types and structures. In addition, upcoming renewal reports are provided with pricing information that sets realistic minimums and stretch targets. The pricing information can be integrated with the bank s existing pricing process and systems. Management receives reports that provide reporting on how the loan portfolio is performing to the market as well lending teams and individual loan officers. The analysis enables management to focus on large upcoming opportunities and gives a retrospective look at successes and shortfalls of performance. As business plans change, management can uncover tactical changes in execution strategy and can fine-tune pricing strategies and practices. Training and Education for Lenders and Management As part of implementation, S&P provides training on how to use the service. Training topics also include in-depth analysis of trends, business strategies and outlook that S&P sees in the market. The lending teams will be presented with information that will help them to uncover pricing opportunities in the market. After implementation, market update seminars are held twice a year. 3
Support the Management Process S&P recognizes that every bank has its own process for setting pricing guidelines followed by the individual loan approval process. The Commercial Loan Pricing Service can be easily integrated into bank s existing pricing process. Success depends on making sure the Commercial Loan Pricing Service is aligned and integrated to your process as illustrated in the chart below. The Positive Impact on Lender Performance The entire lending team will benefit with increased knowledge of their local market data to better manage their preparation to close commercial loan business. S&P has found that lenders who use this service are better prepared, have a higher level of confidence and improve their ability to sell value over price with their business negotiations. In addition, management receives stronger feedback on lender performance and are better equipped to judge individual performance based on relative market conditions. The end result is performance evaluations are more balanced and objective when reliable market data is included in lender performance criteria. 4
The Bottom Line S&P has consistently delivered tangible value with the Commercial Loan Pricing Service. Banks who have used this service have experienced the following results: We would like the opportunity to be of further service to you and would be glad to schedule an executive session to review in detail how the service could perform for your bank. Brian Blair, Malvern National Services, is the sales contact for the S&P Commercial Loan Pricing Service in the community bank market. He can be reached at the contact information listed below. Brian Blair Malvern National Services Phone: 610-644-1366, Email: bblair@malvernnational.com What S&P Client Bankers Are Saying S&P s bank clients are very pleased with the results of the service. Listed below are recent communications from a new client and a two year client: Recent Status Report from New Bank Client We are about half way into year 1 of the S& P Pricing Optimization Program. We are on track to beat the estimated revenue gains despite the fact that we are operating in a very challenging pricing environment. We have been able to achieve these pricing improvements without putting at risk our volume, relationship profitability or other business objectives. Excerpt From Recent Memo to Banking Team To Prepare for 2012 The Bank has been using Standard & Poor s for the last 2 years to provide us market intelligence around the pricing of our loans. The success of the partnership has been very good. The Bank has been particularly successful in preserving strong pricing on renewing credits, even while maintaining a more competitive stance on originations. In aggregate, the Bank has moved from on-market to above-market performance. 5