THE RENAISSANCE IN COMMERCIAL AND INDUSTRIAL LENDING taking the risk out of small business lending The RMA National Conference November 2015
THE RENAISSANCE IN COMMERCIAL AND INDUSTRIAL LENDING Reports of my death have been greatly exaggerated. - Mark Twain
WILL BANKS RESEMBLE UTILITIES? TECH
BANKS LOSING LOAN SHARE AT ALARMING PACE Market share of lending -11% last 7 years. Even 20 YIB going elsewhere. 0-5 YIB Drastic for banks.
BANK LENDING PROBLEM Many community and regional banks lose money from small business loans
COMPLIANCE
TECHNOLOGY OFFERS THE WAY FORWARD SOFTWARE
` TECH fin Grossly overvalued companies that provide credit to underserved markets and are sold to investors as technology companies so they get valuations like Google, Amazon, Apple. investment banking friend
FIN tech ` FROM TECH fin ` Companies that use software, algorithms and data to deliver financial products at lower cost. - Wharton FinTech Club
ONLINE CREDIT PROCESS DATA ALGORITHMS SOFTWARE
BANKABLE CREDITS Banks vs. Online BANKS ONLINE
BANKS vs. ONLINE Borrower Tenure
ONLINE LENDERS 2009 vs. 2014
SMALL BUSINESS CREDIT MARKET ($ in billions) Source: Federal Reserve Board Financial Accounts of the U.S. March 12, 2015
SMALL BUSINESS CREDIT GAP
BUSINESS CONDITIONS LENDING ACTIVITY
BUSINESS CONDITIONS LOAN DELINQUENCIES
BUSINESS CONDITIONS LOAN DELINQUENCIES
BUSINESS CONDITIONS LENDING ACTIVITY
BUSINESS CONDITIONS LENDING ACTIVITY
BUSINESS CONDITIONS - START-UPS Year Over Year Change
HISTORICAL DEFAULT RATES
TOP TEN STATES LOAN DELINQUENCIES
THE BUSINESS CYCLE REMAINS POSITIVE
ABOVE AVERAGE CREDIT QUALITY
ABOVE AVERAGE CREDIT QUALITY
POSITIVE CREDIT OUTLOOK
RISK REWARD BY INDUSTRY Lending Activity (SBLI) AbsolutePD Probability of Default
RISK REWARD BY GEOGRAPHIC REGION Lending Activity (SBLI) AbsolutePD Probability of Default
FINANCIAL TECHNOLOGY LOAN REVIEW Typical C&I loan review process - 1 credit, 2 weeks and 13 touches Average cost per credit = $1,000+ PayNet s AbsolutePD can lower this cost by over 50% This graphic shows the Savings from the streamlined processes of PayNet s AbsolutePD
FINANCIAL TECHNOLOGY PORTFOLIO GROWTH AbsolutePD Adds Line Growth from Current Portfolio Upgrade 2 5% of current customers Add significant line growth on good risks Case Study: C&I Earning Asset Growth This example shows the potential to grow C&I earning assets from current customers Total number of customers 1,056 Average loan size / customer $ 276,500 Total earning assets $ 291,984,000 Number of customer upgrades Q3 55 Average line increase potential $ 100,000 Total Potential Line Growth $ 5,500,000 Earning Asset Growth Percent 1.9%
FINANCIAL TECHNOLOGY CECL (825-15) Identify declining customers Predictive credit downgrades; improved loss prevention More accurate capital allocation, reserve planning Case Study: C&I Default Avoidance This example shows the potential to limit C&I default from current customers Total number of customers 1,056 Average loan size / customer $ 276,500 Total earning assets $ 291,984,000 Number of customer downgrades Q3 18 Average line $ 176,975 Total Potential Default Avoidance $ 3,185,550
BANKS COMPETITIVE ADVANTAGES SOFTWARE Lowest Cost of Funds YOU!
THE RENAISSANCE IN COMMERCIAL AND INDUSTRIAL LENDING Reports of my death have been greatly exaggerated. - Mark Twain
THANK YOU THE RENAISSANCE IN COMMERCIAL AND INDUSTRIAL LENDING The RMA Journal November 2015 Page 18