Winners and Losers Commercial Lending Dynamics...2018/11/01 · November 1, 2018 Winners and Losers...
Transcript of Winners and Losers Commercial Lending Dynamics...2018/11/01 · November 1, 2018 Winners and Losers...
November 1, 2018
Winners and LosersCommercial Lending Dynamics
Risk and Return Profiles by Geography and Industry
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AFS Pricing Dashboard
The Industry Source for Commercial Lending Pricing Trends
Includes $1.2 trillion in commercial loan commitments, with 80,000 new or renewed loans added per quarter
Benchmarking of key loan pricing and volume growth metrics against market peers
Robust platform for analytics, reporting and monitoring
Metrics Spread Pricing Fees Balance Growth New/Renewed Volume
Northeast Region
Middle Atlantic Region
South Region
Eastern Midwest Region
Western Midwest Region
Southwest Region
West Region
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Financial Market Overview
Source: U.S. Energy Information Administration (EIA)
Source: Federal Reserve Board – Statistical Releases
…The WTI oil spot price increased significantly over the last year…
Real GDP increased in 3Q18 at an annualized rate of +3.5%, a faster pace of growth than reported in the same quarter a year earlier…
…The yield on 10‐year treasuries was up in September when compared to both last month and the same month a year earlier.
Source: Bureau of Economic Analysis
0.0
1.0
2.0
3.0
4.010‐Year Treasuries
% Change Real GDPSeasonally Adjusted Annual Rates
01020304050607080
Cushing OK WTISpot Price FOB Dollars per Barrel
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0.000.501.001.502.002.503.003.504.004.505.00
10‐Year Treasuries Fixed‐Rate Loans >10 Years(AFS Pricing Dashboard)
One‐Month LIBOR
LIBOR‐Rate Loans(AFS Pricing Dashboard)
5‐Year Treasuries
Bank Pricing vs. Market Rates
Bank Pricing vs. Market Rates
Sources: AFS Pricing Dashboard – September 2018Federal Reserve Board – Statistical Releases
+65 BPS y/y
+103 BPS y/y
+89 BPS y/y
+80 BPS y/y
+109 BPS y/y
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Agenda
Balance GrowthOverall Commercial loan balance growth slowed quarter/quarter in SeptemberOil & Gas outpaced all other industries for year‐to‐date balance growth
Line Utilization
New/Renewed Vol.
Spread Pricing
Fee Pricing
Special Topic
Line utilization was flat both quarter/quarter and year/year in September
For both bilateral loans and participations, new/renewed volume in 3Q18 was above the levels seen in 3Q17
Average spreads for new/renewed loans were down in September from a year ago, a trend seen for both bilateral loans and participations
Total annualized fee performance in September was up slightly from a year ago, a trend reflected across most geographic regions
This month we examine spread pricing in the context of credit risk for several major regional and industry subsegments
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100
150
200
250
300
350New Renewed 10‐Year Treasuries
LIBOR‐Equivalent Spread (in BPS) TrendAll Loan Types
$0
$5
$10
$15
$20
$25
$30
$35New Renewed
New and Renewed Loans Trend ($ Billions)All Loan Types
Commercial Loan Market Overview: September 2018
Source: AFS Pricing Dashboard – September 2018
Sep 20120.44%
Sep 20131.43%
Sep 20141.84%
Sep 20151.58%
Sep 20160.21%
Sep 20170.19%
Sep 20180.81%
‐1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Percen
t Growth
Growth in Outstandings ‐ Quarterly Trend(Quarter‐over‐Quarter Growth Rates)
0
10
20
30
40
50
60
2017* 2018*
Total Fees Upfront Fees
Total Fees Paid (in BPS) ‐ Bilateral LoansYear‐over‐Year Comparison
* Based on Comparative Jan‐Sep Periods
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Is the C&I Comeback Already Over?
“Big banks had hoped business lending would gain additional momentum over the summer after a rally in the spring, but third‐quarter results are expected to show the comeback was short‐lived.
Analysts cited a number of factors for the linked‐quarter decline in commercial loans: Lending typically slows down during the summer months, corporate customers are still flush with cash following the tax cut, and many are refinancing their bank debt in the capital markets or with nonbank competitors such as private‐equity firms.
Analysts typically expect commercial lending to increase on pace with the economy as a whole. During the second quarter, the gross domestic product rose about 4% from the prior quarter, according to the Bureau of Economic Analysis. Additionally, recent Fed data suggests that economic growth picked up more steam during the third quarter.
After nearly two years of lackluster commercial growth, analysts and investors are starting to wonder if companies’ reluctance to borrow is a sign that an economic downturn is on the horizon.”
—American Banker, October 9, 2018
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Linked Quarter‐over‐Quarter Balance Growth Slows in September
Source: AFS Pricing Dashboard – September 2018
‐2.0%‐1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%
Percen
t Growth
Bilateral Loans Participations
Growth in Outstandings ‐ Quarterly Trend(Quarter‐over‐Quarter Growth Rates)
‐4.00% ‐3.45%
1.79%
6.14%3.70%
‐5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
< $1M $1M to< $5M
$5M to< $25M
>= $25M CRE
Percen
t Growth
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018Bilateral Loans
C&I Bilateral Loans
15.15%
5.02%
0.44%
3.75% 3.77%
0.0%
5.0%
10.0%
15.0%
20.0%
< $1M $1M to< $5M
$5M to< $25M
>= $25M CRE
Percen
t Growth
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018Participations
C&I Participations
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CRE Bilateral Balance Growth Driven by Larger‐End Loans
Source: AFS Pricing Dashboard – September 2018
‐5.0%
0.0%
5.0%
10.0%
15.0%
Percen
t Growth
Bilateral Loans Participations
Growth in Outstandings ‐ Quarterly Trend ‐ CRE)Quarter‐over‐Quarter Growth Rates(
‐3.00%
1.21% 1.30%
12.70%
‐5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
< $1M $1M to< $5M
$5M to< $25M
>= $25M
Percen
t Growth
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018Bilateral Loans ‐ CRE
‐1.39%
19.21%
3.69%5.78%
‐5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
< $1M $1M to< $5M
$5M to< $25M
>= $25M
Percen
t Growth
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018Participations ‐ CRE
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Linked Year‐over‐Year Balance Growth Gradually Rebounds
Source: AFS Pricing Dashboard – September 2018
The charts below plot year‐over‐year loan growth rates for each month, allowing us to better account for seasonal effects on the loan growth trend. Year‐over‐year Commercial loan balance growth in September 2018 was 2.9%, representing a rebound from the downtrend seen in late 2016/early 2017.
Note: y‐axis is wider for the right‐hand chart.
0%
2%
4%
6%
8%
10%
12%
2013 2014 2015 2016 2017 2018
% Growth Ye
ar‐ove
r‐Year
Growth in Outstandings Trend by Month(Year‐over‐Year Growth Rates)
All Loan Types (Bilateral Loans & Participations)
‐5%
0%
5%
10%
15%
20%
25%
30%
2013 2014 2015 2016 2017 2018
% Growth Ye
ar‐ove
r‐Year
Growth in Outstandings Trend by Month(Year‐over‐Year Growth Rates)
Bilateral Loans Participations
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Texas and New York Rank Among the Top 5 States for Both Bilateral Loans and Participations
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Outstandings of at least $3 billion in the base period is required. Source: AFS Pricing Dashboard – September 2018
6.0%
5.7%
4.6%
3.7%
1.7%
2.2%
‐0.8%
‐0.9%
‐1.0%
‐4.0%
‐6.3%
Massachusetts
Texas
New York
FloridaCalifornia
Maryland
OhioNorth Carolina
ConnecticutMissouri
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018All Loan Types
Nat'l Avg
5.3%
4.0%
3.4%
3.1%
2.7%
1.9%
‐1.3%
‐2.1%
‐2.2%
‐2.3%
‐5.0%
New York
FloridaNew Jersey
Texas
California
Ohio
Illinois
MarylandPennsylvania
Missouri
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018Bilateral Loans
Nat'l Avg
9.8%
9.0%
7.0%
4.0%
2.9%
3.2%
0.3%
‐1.4%
‐5.6%
‐6.9%
‐11.6%
Massachusetts
TexasPennsylvania
IllinoisNew York
MichiganCaliforniaNew Jersey
North Carolina
Connecticut
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018Participations
Nat'l Avg
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* Core Based Statistical Areas (CBSAs)Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan.Source: AFS Pricing Dashboard – September 2018
Drilling Down to the CBSA* Level
3.13%
8.74%
2.93%
‐11.50%
‐0.59%‐3.97%
‐15.0%
‐10.0%
‐5.0%
0.0%
5.0%
10.0%
15.0%
Percen
t Growth
Growth in Outstandings ‐ BilateralTexas
Dec 2017 to Sep 2018
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Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Source: AFS Pricing Dashboard – September 2018
Mixed Results by State for Bilateral Loan Growth
Top 5 States1. New York2. California3. Florida4. New Jersey5. Texas
Bottom 5 States1. Pennsylvania2. Maryland3. Missouri4. Ohio5. West Virginia
ALARAZ
CA CO
CT
DCDE
FL
GA
IA
ID
IL INKS KY
LA
MA
MD
ME
MI
MN
MO
MS
MT
NC
ND
NE
NH
NJ
NM
NV
NY
OH
OK
OR
PARI
SC
SD
TN
TX
UTVA
VTWA
WI
WV
WY
Growth in OutstandingsDec 2017 vs. Sep 2018
Bilateral Loans
Negative Growth$0 to $100M$100M to $250M $250M to $500M Greater‐than $500MInsufficient Data
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Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Source: AFS Pricing Dashboard – September 2018
Participation Balances Up Year to Date Across the Majority of States
Top 5 States1. Texas2. Massachusetts3. Arizona4. Pennsylvania5. New York
Bottom 5 States1. Connecticut2. New Jersey3. California4. North Carolina5. Missouri
ALARAZ
CA CO
CT
DCDE
FL
GA
IA
ID
IL INKS KY
LA
MA
MD
ME
MI
MN
MO
MS
MT
NC
ND
NE
NH
NJ
NM
NV
NY
OH
OK
OR
PARI
SC
SD
TN
TX
UTVA
VTWA
WI
WV
WY
Growth in OutstandingsDec 2017 vs. Sep 2018
Participations
Negative Growth$0 to $100M$100M to $250M $250M to $500M Greater‐than $500MInsufficient Data
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C&I Loan Market Rallies on Oil & Gas Rebound
Note: Industry categories based on North American Industry Classification System (NAICS). Outstandings of at least $3 billion in the base period is required.Source: AFS Pricing Dashboard – September 2018
21.5%
16.0%
8.3%
5.0%
3.5%
2.2%
‐1.9%
‐3.5%
‐6.3%
‐6.4%
‐7.4%
Mining, Oil & Gas
Retail Trade (Hobby, General)
Finance & Insurance Wholesale Trade
Manufacturing (Machinery, Elec)
Health Care & Social Assistance
Educational Services Professional, Scientific, & Tech
Public Administration
Agriculture
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018All Loan Types
All Industries Avg
14.3%
4.6%
3.8%
3.7%
2.1%
1.9%
‐1.6%
‐3.2%
‐6.4%
‐6.4%
‐7.5%
Finance & Insurance
Manufacturing (Machinery, Elec)
Wholesale Trade
Retail Trade (Motor, Elec, Bldg)
Other Services
Health Care & Social Assistance
Educational Services Public Administration
Professional, Scientific, & Tech Agriculture
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018Bilateral Loans
All Industries Avg
27.0%
8.6%
7.3%
5.8%
2.7%
3.2%
‐2.1%
‐3.9%
‐4.5%
‐6.2%
‐6.6%
Mining, Oil & Gas Admin, Support, Waste Mgmt
Wholesale Trade
Manufacturing (Food, Bev, Apparel) Manufacturing (Machinery, Elec)
Manufacturing (Wood, Chem) Retail Trade (Motor, Elec, Bldg)
Health Care & Social Assistance
Professional, Scientific, & Tech Accommodation & Food Services
Growth in Outstandings ‐ Dec 2017 vs. Sep 2018Participations
All Industries Avg
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Note: Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
Drilling Down to the 6‐Digit NAICS Level
4.58%
21.58%
1.36%
19.48%
0.80%0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
33Manufacturing
(Machinery, Elec)
337Furniture &
Related ProductManufacturing
337110Wood KitchenCabinet &Countertop
Manufacturing
337212Custom
ArchitecturalWoodwork &Millwork
Manufacturing
337215Showcase,Partition,
Shelving, & LockerManufacturing
Percen
t Growth
Growth in Outstandings ‐ BilateralManufacturing (Machinery, Elec)
Dec 2017 to Sep 2018
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Balance Growth by State and Industry: Bilateral Loans
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
ALARAZ
CA CO
CT
DCDE
FL
GA
IA
ID
IL INKS KY
LA
MA
MD
ME
MI
MN
MO
MS
MT
NC
ND
NE
NH
NJ
NM
NV
NY
OH
OK
OR
PARI
SC
SD
TN
TX
UTVA
VTWA
WI
WV
WY
Growth in Outstandings ‐ Predominant C&I Industries*Dec 2017 vs. Sep 2018
Bilateral Loans
Retail & Wholesale TradeHealth CareFinance & Management of CompaniesManufacturingMining and TransportationAccommodation, Entertainment, & FoodOther
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Industry Classification
Industry Sector NAICSAccommodation, Entertainment, & Food 71 Arts, Entertainment, & RecreationAccommodation, Entertainment, & Food 72 Accommodation & Food ServicesFinance & Management of Companies 52 Finance & InsuranceFinance & Management of Companies 55 Management of Companies & EnterprisesHealth Care 62 Health Care & Social AssistanceManufacturing 31 ManufacturingManufacturing 32 ManufacturingManufacturing 33 ManufacturingMining and Transportation 21 Mining, Quarrying, & Oil & Gas ExtractionMining and Transportation 48 Transportation & WarehousingMining and Transportation 49 Transportation & WarehousingOther 11 Agriculture, Forestry, Fishing & HuntingOther 22 UtilitiesOther 51 InformationOther 54 Professional, Scientific, & Technical ServicesOther 56 Administrative & Support & Waste Management & RemediationOther 61 Educational ServicesOther 81 Other Services (except Public Administration)Other 92 Public AdministrationRetail & Wholesale Trade 42 Wholesale TradeRetail & Wholesale Trade 44 Retail TradeRetail & Wholesale Trade 45 Retail Trade
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Balance Growth by State and Industry: Participations
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
ALARAZ
CA CO
CT
DCDE
FL
GA
IA
ID
IL INKS KY
LA
MA
MD
ME
MI
MN
MO
MS
MT
NC
ND
NE
NH
NJ
NM
NV
NY
OH
OK
OR
PARI
SC
SD
TN
TX
UTVA
VTWA
WI
WV
WY
Growth in Outstandings ‐ Predominant C&I Industries*Dec 2017 vs. Sep 2018
Participations
Retail & Wholesale TradeHealth CareFinance & Management of CompaniesManufacturingMining and TransportationAccommodation, Entertainment, & FoodOther
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GDP and Loan Growth: Is There a Correlation?
Total Commercial loan growth for the Top 10 CBSAs* continued to accelerate in September, with these 10 regions leading the market for total Commercial loan growth. Balances for All Other Regions increased modestly in September from the prior quarter but continued to lag the pace seen for the Top 10 CBSAs.
* Top 10 Core Based Statistical Areas (CBSAs) based on contribution to total U.S. Real GDP. Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Real GDP data sourced from the Bureau of Economic Analysis (BEA)Source: AFS Pricing Dashboard – September 2018
2.9%
4.6%5.3% 5.5% 6.0%
6.9%7.7%
9.0%9.6%
11.7%
13.2%
1.4%2.7% 2.6% 2.9% 2.6% 2.6%
2.3% 2.5% 2.7%3.4% 3.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
% Growth
Growth in Outstandings ‐ December 2015 BaselineTop 10 CBSAs vs. All Other Regions
Top 10 CBSAs
All Other Regions
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Overall Line of Credit Utilization Remains Flat
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
20%
30%
40%
50%
60%Overall Line Usage < $1M $1M to < $5M
$5M to < $25M >= $25M Participations
Line of Credit Utilization Rate ‐ By Deal SizeRevolving Lines of Credit Only
50.2%
49.0%
45.3%
44.7%
43.7%
38.2%
33.3%
33.0%
26.8%
26.6%
23.8%
New HampshireUtah
Kansas
Oregon
NevadaWisconsin
Rhode IslandMissouri
Washington
Top 5 / Bottom 5 States ‐ Line Utilization Sep 2018 All Loan Types
Louisiana
Nat'l Avg
50.3%
45.8%
45.6%
44.8%
41.3%
38.2%
33.6%
32.1%
30.2%
21.1%
20.7%
Agriculture
Wholesale Trade
Mining, Oil & Gas Retail Trade (Motor, Elec, Bldg) Transportation (Postal, Courier)
Arts, Entertainment, & Recreation
Retail Trade (Hobby, General)
Professional, Scientific, & Tech
Educational Services Utilities
Top 5 / Bottom 5 C&I Industries ‐ Line Utilization Sep 2018 All Loan Types
All Industries Avg
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100
150
200
250
300
350
400New Renewed 10‐Year Treasuries
LIBOR‐Equivalent Spreads (in BPS) TrendBilateral Loans
$0
$5
$10
$15
$20New Renewed
New and Renewed Loan Volume ($ Billions)Bilateral Loans
3Q18 New/Renewed Bilateral Volume Above 3Q17Spreads on New/Renewed Bilateral Loans Down from Prior Year
Source: AFS Pricing Dashboard – September 2018
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Volume vs. Spread Pricing: New/Renewed Bilateral LoansState and Industry Detail for the Most Recent 6‐Month Period
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
$31.6
$17.3
$10.1
$7.8
$6.3
$4.8
$3.9
$3.7
$3.7
$3.4
Finance & Insurance
Wholesale Trade
Manufacturing (Machinery, Elec)
Health Care & Social Assistance
Retail Trade (Motor, Elec, Bldg)
Professional, Scientific, & Tech
Accommodation & Food Services
Manufacturing (Food, Bev, Apparel)
Manufacturing (Wood, Chem) Other Services
Top 10 C&I Industries New/Renewed Volume Apr 2018 to Sep 2018 Bilateral Loans
204
189
184
187
208
207
244
240
157
198
214
Finance & Insurance
Wholesale Trade Manufacturing (Machinery, Elec)
Health Care & Social Assistance Retail Trade (Motor, Elec, Bldg)
Professional, Scientific, & Tech Accommodation & Food Services
Manufacturing (Food, Bev, Apparel)
Manufacturing (Wood, Chem) Other Services
Top 10 C&I Industries New/Renewed Volume ‐ LIBOR‐Equ. Spread Bilateral Loans
All Industries Avg
$30.6
$17.4
$12.9
$8.4
$6.4
$5.7
$5.4
$5.0
$4.9
$4.2
California
New York
Texas
Florida
Ohio
Pennsylvania
New Jersey
Massachusetts
Georgia
North Carolina
Top 10 States New/Renewed Volume Apr 2018 to Sep 2018 Bilateral Loans
212
216
235
220
223
207
206
228
199
193
218
CaliforniaNew York
Texas
FloridaOhio
PennsylvaniaNew Jersey
Massachusetts
Georgia
North Carolina
Top 10 States New/Renewed Volume ‐ LIBOR‐Equ. Spread Bilateral Loans
Nat'l Avg
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100
150
200
250
300
350
400New Renewed 10‐Year Treasuries
LIBOR‐Equivalent Spreads (in BPS) TrendParticipations
$0
$5
$10
$15
$20New Renewed
New and Renewed Loan Volume ($ Billions)Participations
3Q18 New/Renewed Participation Volume Up from 3Q17But Spreads Down Sharply From a Year Ago
Source: AFS Pricing Dashboard – September 2018
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Volume vs. Spread Pricing: New/Renewed ParticipationsState and Industry Detail for the Most Recent 6‐Month Period
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
$13.7
$9.3
$8.7
$4.8
$4.0
$4.0
$3.9
$3.7
$3.4
$2.9
Texas
New York
California
Pennsylvania
Massachusetts
Ohio
Florida
Georgia
Illinois
Virginia
Top 10 States New/Renewed Volume Apr 2018 to Sep 2018 Participations
$10.7
$10.0
$9.1
$5.7
$5.2
$4.5
$4.4
$4.3
$3.0
$3.0
Finance & Insurance
Manufacturing (Machinery, Elec)
Mining, Oil & Gas
Information
Wholesale Trade
Professional, Scientific, & Tech
Utilities
Manufacturing (Wood, Chem)
Transportation (Air, Water, Truck)
Retail Trade (Motor, Elec, Bldg)
Top 10 C&I Industries New/Renewed Volume Apr 2018 to Sep 2018 Participations
248
186
191
170
164194
161
204
173
178
170
Texas
New York
CaliforniaPennsylvania
Massachusetts
Ohio
FloridaGeorgiaIllinois
Virginia
Top 10 States New/Renewed Volume ‐ LIBOR‐Equ. Spread Participations
Nat'l Avg
168163
275
167
183
194191
152
177
199
157
Finance & Insurance
Manufacturing (Machinery, Elec) Mining, Oil & Gas
Information
Wholesale Trade
Professional, Scientific, & Tech Utilities
Manufacturing (Wood, Chem)
Transportation (Air, Water, Truck) Retail Trade (Motor, Elec, Bldg)
Top 10 C&I Industries New/Renewed Volume ‐ LIBOR‐Equ. Spread Participations
All Industries Avg
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Total Annualized Fee Performance in September Up Slightly from Same Period a Year Ago
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
0
10
20
30
40
50
60
2017* 2018*
Total Fees Upfront Fees
Total Fees Paid (in BPS) ‐ Bilateral LoansYear‐over‐Year Comparison
* Based on Comparative Jan‐Sep Periods
0
10
20
30
40
50
60
Eastern
Midwest
Middle
Atlantic
Northea
st
South
Southw
est
West
Western
Midwest
2017* 2018*
Total Upfront Fees Paid (in BPS) Year‐over‐Year Comparison ‐ By Geographic Region
* Based on Comparative Jan‐Sep Periods
01020304050607080
Mining
Utilities
Inform
ation
Admin, S
uppo
rt,
Waste M
gmt,
& Rem
ediatio
n
Fina
nce &
Insuranc
e
Agric
ulture,
Forestry, Fishing
& Hun
ting
Man
agem
ent
of Com
panies
Retail Trad
e(M
otor, E
lec,
Bldg
)
Educationa
lSe
rvices
Public
Administration
2017* 2018*
Total Upfront Fees Paid (in BPS) Year‐over‐Year Comparison ‐ By Industry
* Based on Comparative Jan‐Sep Periods
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Balance Growth: Industry Drivers by Geographic Region
The AFS Pricing Dashboard enables Users to pinpoint industry loan growth drivers across their unique geographic footprints.
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
0.6%
5.4%3.3%
13.7%
6.1%
9.2%
Real Estate Manufacturing(Machinery,
Elec)
WholesaleTrade
Bilateral Participations
16.7%
0.1% 0.3%
‐0.6%
9.8%
28.0%
Finance& Insurance
Real Estate WholesaleTrade
Bilateral Participations
17.2%
3.8%
‐5.5%
20.4%
‐2.3%
13.2%
Finance& Insurance
Real Estate Professional,Scientific,& Tech
Bilateral Participations
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Balance Growth: Industry Drivers by Geographic Region
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
1.4%
12.8%
8.0%
15.5%
‐3.1%
1.0%
Real Estate Finance& Insurance
Retail Trade(Motor, Elec,
Bldg)
Bilateral Participations
2.9%
‐8.7%
18.8%11.3%
34.4%
‐15.4%Real Estate Manufacturing
(Machinery,Elec)
Finance& Insurance
Bilateral Participations
47.3%
8.9%2.6%
8.7% 4.7%
‐6.3%Wholesale
TradeManufacturing(Wood, Chem)
Finance& Insurance
Bilateral Participations
5.2%
15.9%
10.2%
‐1.4%
8.3%
4.1%
Real Estate Finance& Insurance
Manufacturing(Machinery,
Elec)
Bilateral Participations
Special TopicRisk and Return Profiles by Geography
and Industry
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The Spread Per Unit of Risk is equal to the Wtd. Avg. LIBOR‐Equivalent Spread divided by the Wtd Avg Risk Rating*.
Banks in the Pricing Dashboard database were divided into “top” and “bottom” groups relative to this risk‐return measure.
A wide range exists across the banks relative to this measure, with the bank variation attributable, in part, to differences in regional and industry compositions.
Spread Per Unit of Risk
Source: AFS Pricing Dashboard – September 2018* Weighted average risk rating based on the RMA 10‐point obligor risk rating scale.
58.6
45.941.2
Top Banks Median Bank Bottom Banks
Spread Per Unit of RiskNew/Renewed Loans YTD 2018
Metric Bank A Bank B
Wtd Avg LIBOR‐Equ. Spread 300 bps 350 bps
Wtd Avg Risk Rating (10‐Pt Scale) 5.00 5.00
Spread Per Unit of Risk 60 70
In this hypothetical example, Bank B earns 10 bps more in spread income than Bank A for the same level of credit risk.
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Top Banks vs. Bottom BanksGeographic Composition of Outstandings
Both the Top and Bottom banks are heavily dependent on the Top 10 CBSAs* for loan volume (left chart). However, when viewed across these individual metros, the Top Banks were far less concentrated in Los Angeles versus the Bottom Banks, with the Top Banks more heavily favoring Atlanta, Dallas, and Houston (right chart).
42% 43%
58% 57%
Top Banks BottomBanks
All Other Regions
Top 10 CBSAs
% Outstandings Sep 2018
0%
2%
4%
6%
8%
10%
12%
Atla
nta, GA
Boston
, MA
Chicago, IL
Dallas, TX
Hou
ston
, TX
Los An
geles, CA
New
York, NY
Phila
delphia, PA
San Fran
cisco, CA
Washing
ton, DC
% Outstan
ding
s Sep
201
8
Top Banks Bottom Banks
* Top 10 Core Based Statistical Areas (CBSAs) based on contribution to total U.S. Real GDP. Real GDP data sourced from the Bureau of Economic Analysis (BEA).Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Source: AFS Pricing Dashboard – September 2018
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Top Banks vs. Bottom BanksIndustry Composition of Outstandings
The Top and Bottom Banks, as categorized by Spread Per Unit of Risk, were similar in their splits of C&I/CRE loans (left chart). At a more granular industry level, the Top Banks were more heavily concentrated in Retail Trade and Accommodation/Food, while the Bottom Banks heavily favored the Finance & Insurance sector (right chart).
65% 66%
35% 34%
Top Banks BottomBanks
Real Estate/Construction
C&I IndustrySectors
% Outstandings Sep 2018
0%
2%
4%
6%
8%
10%
12%
Agriculture
Mining, Oil & Gas
Utilities
Man
ufacturin
g
Who
lesale Trade
Retail Trad
e
Tran
sportatio
n& W
areh
ousin
g
Inform
ation
Fina
nce &
Insuranc
eProfession
al,
Scientific, & Tech
Man
agem
ent
Admin, Sup
port
& W
aste M
gmt
Educ
ationa
l Services
Health Care
Arts & Entertainmen
t
Accom
mod
ation
& Foo
d
% Outstan
ding
s Sep
201
8
Top Banks Bottom Banks
Note: Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – September 2018
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Market IntelligenceLos Angeles
For new/renewed loans in 2018, spread and risk levels were slightly worse than average for Los Angeles.
204 208
Los Angeles All Other Regions
LIBOR‐Equivalent Spread in bps, YTD 2018
4.63 4.53
Los Angeles All Other Regions
Wtd Avg Risk Rating (10‐Pt Scale), YTD 2018
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Spread and risk measures based on new/renewed loans in the Jan 2018 to Sep 2018 period.Weighted average risk rating based on the RMA 10‐point obligor risk rating scale. Spread Per Unit of Risk = Weighted average LIBOR‐equivalent spread / weighted average risk rating.Source: AFS Pricing Dashboard – September 2018
1.68%
2.28%
Los Angeles All Other Regions
% Growth Outstandings, YTD 2018
44.1 45.9
Los Angeles All Other Regions
Spread Per Unit of Risk, YTD 2018
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Market IntelligenceFinance & Insurance
For the Finance & Insurance sector, lower spread pricing was commensurate with lower (i.e., better) credit quality.
197210
Finance & Insurance All Other Industries
LIBOR‐Equivalent Spread in bps, YTD 2018
4.10
4.62
Finance & Insurance All Other Industries
Wtd Avg Risk Rating (10‐Pt Scale), YTD 2018
8.32%1.67%
Finance & Insurance All Other Industries
% Growth Outstandings, YTD 2018
Note: Industry categories based on North American Industry Classification System (NAICS). Spread and risk measures based on new/renewed loans in the Jan 2018 to Sep 2018 period.Weighted average risk rating based on the RMA 10‐point obligor risk rating scale. Spread Per Unit of Risk = Weighted average LIBOR‐equivalent spread / weighted average risk rating.Source: AFS Pricing Dashboard – September 2018
48.045.4
Finance & Insurance All Other Industries
Spread Per Unit of Risk, YTD 2018
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Market Intelligence Finance & Insurance in Los Angeles
While L.A. as a whole exhibits a competitive risk‐return profile, Finance & Insurance loans in this same metro display a relatively wide spread per unit of risk.
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS). Spread and risk measures based on new/renewed loans in the Jan 2018 to Sep 2018 period.Weighted average risk rating based on the RMA 10‐point obligor risk rating scale. Spread Per Unit of Risk = Weighted average LIBOR‐equivalent spread / weighted average risk rating.Source: AFS Pricing Dashboard – September 2018
207 208
Finance & Insurancein Los Angeles
Total Portfolio Less Finance &Insurance in Los Angeles
LIBOR‐Equivalent Spread in bps, YTD 2018
6.50%
2.21%
Finance & Insurancein Los Angeles
Total Portfolio Less Finance &Insurance in Los Angeles
% Growth Outstandings, YTD 2018
4.16
4.54
Finance & Insurancein Los Angeles
Total Portfolio Less Finance &Insurance in Los Angeles
Wtd Avg Risk Rating (10‐Pt Scale), YTD 2018
49.745.7
Finance & Insurancein Los Angeles
Total Portfolio Less Finance &Insurance in Los Angeles
Spread Per Unit of Risk, YTD 2018
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Market Intelligence New York City
New York City, a focal region for many banks in the database, exhibited similar spread pricing but a lower (i.e., better) Wtd. Avg. Risk Rating vs. National Averages.
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Spread and risk measures based on new/renewed loans in the Jan 2018 to Sep 2018 period.Weighted average risk rating based on the RMA 10‐point obligor risk rating scale. Spread Per Unit of Risk = Weighted average LIBOR‐equivalent spread / weighted average risk rating.Source: AFS Pricing Dashboard – September 2018
208 208
New York City All Other Regions
LIBOR‐Equivalent Spread in bps, YTD 2018
4.50 4.54
New York City All Other Regions
Wtd Avg Risk Rating (10‐Pt Scale), YTD 2018
4.87%
1.91%
New York City All Other Regions
% Growth Outstandings, YTD 2018
46.2 45.7
New York City All Other Regions
Spread Per Unit of Risk, YTD 2018
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Market Intelligence Accommodation & Food Services
The top banks for risk and return displayed a relatively large concentration in the Accommodation & Food Services industry.
Note: Industry categories based on North American Industry Classification System (NAICS). Spread and risk measures based on new/renewed loans in the Jan 2018 to Sep 2018 period.Weighted average risk rating based on the RMA 10‐point obligor risk rating scale. Spread Per Unit of Risk = Weighted average LIBOR‐equivalent spread / weighted average risk rating.Source: AFS Pricing Dashboard – September 2018
249
206
Accommodation & Food Services All Other Industries
LIBOR‐Equivalent Spread in bps, YTD 2018
4.894.53
Accommodation & Food Services All Other Industries
Wtd Avg Risk Rating (10‐Pt Scale), YTD 2018
‐0.61%
2.38%
Accommodation & Food Services All Other Industries
% Growth Outstandings, YTD 2018
51.045.6
Accommodation & Food Services All Other Industries
Spread Per Unit of Risk, YTD 2018
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Market Intelligence Accommodation & Food Services in New York City
Compared to the rest of the Pricing Dashboard database, Accommodation & Food loans in New York City displayed a relatively high spread per unit of risk.
Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Industry categories based on North American Industry Classification System (NAICS). Spread and risk measures based on new/renewed loans in the Jan 2018 to Sep 2018 period.Weighted average risk rating based on the RMA 10‐point obligor risk rating scale. Spread Per Unit of Risk = Weighted average LIBOR‐equivalent spread / weighted average risk rating.Source: AFS Pricing Dashboard – September 2018
250
208
Accommodation & FoodServices in New York
Total Portfolio LessAccommodation & FoodServices in New York
LIBOR‐Equivalent Spread in bps, YTD 2018
5.084.54
Accommodation & FoodServices in New York
Total Portfolio LessAccommodation & FoodServices in New York
Wtd Avg Risk Rating (10‐Pt Scale), YTD 2018
49.3 45.8
Accommodation & FoodServices in New York
Total Portfolio LessAccommodation & FoodServices in New York
Spread Per Unit of Risk, YTD 2018
‐1.89%
2.26%
Accommodation & FoodServices in New York
Total Portfolio LessAccommodation & FoodServices in New York
% Growth Outstandings, YTD 2018
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Summary of Findings and Observations
The Spread Per Unit of Risk weights spread pricing by the corresponding credit risk, allowing us to make more meaningful comparisons across banks, industries, and geographic regions
When comparing the portfolio compositions between the top and bottom banks for spread per unit of risk, we uncovered several combinations of industries and geographic regions with favorable and unfavorable risk‐return profiles
Los Angeles is a competitive market in the sense that pricing and credit risk average are both slightly worse than average:However, Finance & Insurance loans in this same region display better risk‐return characteristics
Within New York City, a top metro for many of the benchmarking banks, the Accommodation & Food Services industry displays a relatively high spread per unit of risk
AFS can deliver custom regional/industry summary reports and scorecards to participating banks
©2018 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary.41November 1, 2018
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Thank You for Joining Us Today
A recording and a copy of this presentation will be made available by the end of this week.
Questions?
Doug Skinner+1 484‐875‐1562
Don Dougherty+1 484‐875‐1334
Jeremy Chalson+1 484‐875‐1546
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AFS Best Practices Leadership Council Programming
Upcoming AFS in the Industry Events
Topic Date
RMA Annual Conference, Gaylord National Resort & Convention Center, MD Sapphire SponsorLunch innovation speaking session
Breakout session
November 4–6, 2018
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Stay on top of all the latest news and happenings with AFS. Follow us and stay connected.
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Appendix
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$
How Do We Define “Best”?
Balance Growth Percent change in outstandings. Is there positive
growth momentum in the industry or region? Are banks getting their fair share of wallet?
The three criteria listed below are used to evaluate industry and regional performance in the database. Segments in the top quartile for all three categories represent sustainable growth opportunities for banks.
Spread and Fee Pricing Is spread and fee pricing above average for the
industry or region, or rather is the segment showing signs of pricing compression?
Credit Risk Are risk levels and default projections trending
downward for the segment?
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RMA 10‐Point Obligor Risk Rating Scale
Risk Key
Risk Rating
Risk Rating Category Definition and Criteria
1 Substantially Risk‐Free
High Pass Borrowers of unquestioned credit standing at the pinnacle of credit quality. Basically, governments and central banks of major industrialized countries, a few major world‐class banks, and a few multinational corporations.
2 Minimal Risk
High Pass Borrowers of the highest quality, presently and prospectively. Virtually no risk in lending to this class. Cash flows over at least five years demonstrate exceptionally large and/or stable margins of protection. Balance sheets are very conservative and strong with liquid assets. Projected cash flows, including anticipated credit extensions, exhibit strong trends in margins of protection, liquidity, and debt service coverage. Excellent asset quality and management. Access to world capital Markets under any conditions. Typically, large national companies with a significant share of a major, stable industry.
3 Modest Risk
High Pass Borrowers in the lower end of the high‐quality range but with excellent prospects. Very good asset quality and liquidity; consistently strong debt capacity and coverage; very good management. The credit extension is considered definitely sound; however, elements may be present that suggest the borrower may not be free from temporary impairments some‐time in the future. May have limited access to national capital Markets. Typically major regional companies in relatively stable industries.
4 Better than Average Risk
Moderate Pass
Borrowers in the high end of the medium range between borrowers who are definitely sound and those with minor risk characteristics. The margin of protection is good. Elements of strength are present in such areas as liquidity, stability of margins and cash flows, diversity of assets, and lack of dependence on one type of business. Reasonable access to capital Markets or bank financing is present; can always borrow at favorable rates and terms. Well‐established regional and excellent local companies operating in a reasonably stable industry that may be moderately affected by the business cycle and moderately open to changes. Management and owners have unquestioned character, as demonstrated by repeated performance.
5 Average Risk
Moderate Pass
Borrowers with smaller margins of debt service coverage and with some elements of reduced strength. Satisfactory asset quality and liquidity; good debt capacity and coverage; and good management in critical positions. These companies have good margins of protection and will definitely qualify as attractive borrowers. These borrowers will be able to obtain similar financing from other financial institutions and can generally borrow at attractive rates and terms. A loss year or a somewhat declining earnings trend may occur, but borrowers have sufficient strength and financial flexibility to offset these issues. These are typically solid companies often operating in cyclical industries that are somewhat vulnerable to change. Management and owners have unquestioned character. Depth of management may become an issue in a growing firm.
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RMA 10‐Point Obligor Risk Rating Scale
Risk Key
Risk Rating
Risk Rating Category Definition and Criteria
6 Acceptable Risk
Low Pass Borrowers with declining earnings, strained cash flow, increasing leverage and/or weakening Market fundamentals that indicate above‐average risk. These borrowers generally have limited additional debt capacity and modest coverage and average or below average asset quality, margins, and Market share. Some management weakness exists. These borrowers should be able to obtain similar financing with comparable terms or somewhat worse, from other banks, but that ability may diminish in difficult economic times. Also, borrowers who are currently performing as agreed but could be adversely affected by such developing factors as deteriorating industry conditions, operating problems, pending litigation of a significant nature, or declining collateral quality/adequacy, and so forth. Companies with average or smaller Market shares operating in a cyclical or declining industry. Management and owners have good character, with no basis for questions.
7 Special Mention (Potential Weakness)
Criticized –Classified
Borrowers who exhibit potential credit weaknesses or downward trends deserving bank management’s close attention. If not checked or corrected, these trends will weaken the bank’s asset and position. While potentially weak, these borrowers are currently marginally acceptable; no loss of principal or interest is envisioned. As a result, special mention assets do not expose an institution to sufficient risk to warrant adverse classification. Included in special mention assets could be turnaround situations, as well as those borrowers previously rated 4–6 who have shown deterioration, for whatever reason, indicating a downgrading from the better categories. Typically companies in start‐up or deteriorating industries or with a poor and declining Market share in an average industry. An element of asset quality, financial flexibility, or management is below average. Management and owners may have limited depth and backup. Borrowers who have been or would normally be categorized special mention by regulatory authorities.
8 Substandard (Definite Weakness – Loss Unlikely)
Criticized –Classified
Borrowers with well‐defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. Management skills are questionable with readily identifiable voids. Borrowers that have been or would normally be classified substandard by regulatory authorities.
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RMA 10‐Point Obligor Risk Rating Scale
Risk Key
Risk Rating
Risk Rating Category Definition and Criteria
9 Doubtful (Partial Loss Probable)
Criticized –Classified
Borrowers classified doubtful have the weaknesses found in substandard borrowers with the added provision that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. The possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses are deferred until a more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures; capital injection; perfecting liens on additional collateral; and refinancing plans. Reserves are generally established to provide for these uncertainties. Management has a demonstrated history of failing to live up to agreements, unethical or dishonest business practices, bankruptcy, and/or conviction on criminal charges.
10 Loss (Definite Loss)
Criticized –Classified
Borrowers deemed incapable of repayment of unsecured debt. Loans to such borrowers are considered uncollectible and of such little value that continuance as active assets of the bank is not warranted. This classification does not mean that the loans have absolutely no recovery or salvage value but, rather, it is not practical or desirable to defer writing off these basically worthless assets even though partial recovery may be effected in the future.
Additional FeaturesDelivering Market Data
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Delivering Market Data: Simple Pricing Grid
AFS will work with the bank to define the appropriate segmentation criteria and level of granularity. This can be used for integration into other systems at the bank.
Min/Median/Max/Avg of Banks in Market
Segmentation Criteria
Sample data for illustration purposes only.
Region Collateral Pricing Index Product
New & Renewed
FlagTerm Deal Size EL Number of
Observations
Bank Minimum LIBOR
Equivalent Spread
Bank Median LIBOR
Equivalent Spread
Bank Maximum LIBOR
Equivalent Spread
Market AverageLIBOR
Equivalent Spread
South Secured Re Prime Line of Credit New <= 1 Year $100,000‐$249,999 4.0% < 8.0% 42 3.58 3.70 4.01 3.70
Eastern Midwest Secured No Fixed Line of Credit New 2‐5 Years $5,000,000‐$24,999,999 4.0% < 8.0% 20 2.03 2.03 2.03 2.03
South Secured No Prime Line of Credit New 5‐10 Years <$100,000 4.0% < 8.0% 18 5.64 5.64 5.64 5.64
Eastern Midwest Secured No Fixed Line of Credit New 1‐2 Years $5,000,000‐$24,999,999 4.0% < 8.0% 16 2.16 2.16 2.16 2.16
Eastern Midwest Secured No Fixed Line of Credit New 2‐5 Years <$100,000 4.0% < 8.0% 15 2.09 2.09 2.09 2.09
Eastern Midwest Unsecured LIBOR Line of Credit New <= 1 Year $50,000,000+ 4.0% < 8.0% 14 2.50 2.50 2.50 2.50
South Secured No Fixed Term/Time Loan New 5‐10 Years <$100,000 4.0% < 8.0% 14 4.25 5.90 7.55 4.30
Middle Atlantic Secured Re Prime Line of Credit New <= 1 Year $100,000‐$249,999 4.0% < 8.0% 9 3.77 3.77 3.77 3.77
Eastern Midwest Secured No Fixed Line of Credit New <= 1 Year $5,000,000‐$24,999,999 4.0% < 8.0% 7 2.00 2.00 2.00 2.00
South Secured No Fixed Term/Time Loan New 2‐5 Years <$100,000 4.0% < 8.0% 7 4.03 4.03 4.03 4.03
South Secured No Prime Line of Credit New Unknown/ <$100,000 4.0% < 8.0% 7 5.85 5.85 5.85 5.85
Middle Atlantic Secured Re LIBOR Term/Time Loan New <= 1 Year $1,000,000‐$4,999,999 4.0% < 8.0% 6 4.00 4.00 4.00 4.00
South Secured Re LIBOR Term/Time Loan New 1‐2 Years $5,000,000‐$24,999,999 4.0% < 8.0% 6 3.50 3.50 3.50 3.50
Middle Atlantic Secured No Prime Line of Credit New 5‐10 Years <$100,000 4.0% < 8.0% 5 5.13 5.13 5.13 5.13
Western Midwest Secured Re Prime Line of Credit New <= 1 Year $250,000‐$499,999 4.0% < 8.0% 5 2.93 2.93 2.93 2.93
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Upcoming Renewals Report
PDB View – Includes the Upcoming Renewals Report. Business Purpose – Provides actionable data to support pricing decisions on loans coming
up for renewal. Key Insights – Provides a total market equivalent price for each obligation based on
shared loan characteristics. Allows the Bank to maximize the revenue on each deal while still maintaining its competitive advantage. From an accountability perspective, shows how the pricing of each individual obligation compares to external standards.
For the borrower circled below, the Bank can reprice at more advantageous terms while still undercutting its competitors.
Sample data for illustration purposes only.
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Pricing Performance: Recent New and Renewed Deals
For enforcement of policy, reporting on all New and recently Renewed deals provides an audit of pricing exceptions.
Sample data for illustration purposes only.