AFS Best Practices Leadership Council Webinar …...2020/04/30 · afsvision.com April 30, 2020...

afsvision.com

April 30, 2020

Navigating the New Normal:How COVID-19 is Impacting Commercial Lending

AFS Best Practices Leadership Council Webinar Series Presents:

©2020 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary.2April 30, 2020

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AFS Pricing Dashboard by the Numbers

$1.2 TrillionThe Pricing Dashboard database already totals over $1.2 trillion in committed exposure, with broad coverage and depth across C&I and Commercial Real Estate product categories.

80,000 20+The database is seeded with over 80,000 new or renewed loans per quarter, creating a robust set of historical performance metrics to model and analyze.

The Pricing Dashboard contains a robust offering of measures and dimensions, allowing banks to tailor the analysis to their unique specifications and create balanced scorecards of growth, pricing, and credit risk performance.

Do you want to know… How your portfolio compares to peers? What geographies have tailwinds for loan growth? What sectors have the most pricing volatility? What are spread and fee levels for comparable credit?

The Pricing Dashboard gives you the tools and information you need to stay ahead of the curve.



Agenda

Balance GrowthTotal commercial loan balances rose to unprecedented levels in March, driven by a high number

of large drawdowns under existing lines of credit. The increase in loan growth and line utilization was most pronounced for participated/syndicated

borrowers.

New/Renewed Vol.

Pricing

Fees

Special Topic

New borrowing was up sharply in March from the prior month.

Pricing for new and renewed commercial loans declined across all major market segments this month, as the Fed lowered its benchmark rate to almost zero.The percentage of new/renewed volume tied to LIBOR declined year over year.

While interest rates charged on commercial loans declined in March, the average Upfront fee level for new bilateral loans increased from the prior month.

This month, we analyze the extraordinary increase in commercial line of credit utilization, with an examination of differences across deal size and industry segments.



“The biggest U.S. banks survived the corporate scramble for cash as the novel coronavirus began to shut down the economy last month. A total of $231.2 billion was drawn from revolving credit lines across the industry since March 5. The rush caused a spike in first-quarter loan growth at banks.

“‘The lines were typically from high-quality, investment-grade customers that had commercial paper facilities and needed to have a backstop to those programs in the near term, and/or companies that wanted to increase their liquidity in order to manage through more challenging times,” [U.S. Bancorp’s Chief Financial Officer Terry Dolan] said.

“There is a concern that credit will eventually tighten as the effects of the economy begin to take hold and other sources of funding dry up.”

—American Banker, April 15, 2020

Credit-Line Drawdowns Have Peaked. Will Banks Get Repaid?



C&I loan balances surged in March, increasing more than 100 percent on an annualized basis. Growth in March was more than double the previous high-water mark in October 2008.

Unprecedented Loan Growth

Commercial and industrial loans, all commercial banks, seasonally adjusted, annual growth rate (break adjusted). Shaded area indicates the official length of the last recession. Source: Federal Reserve H.8 Release

Oct 200841.9%

Mar 2020115.6%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Perc

ent G

row

th

Commercial & Industrial LoansSeasonally Adjusted Annual Growth Rate



Early in March, the yield on 10-year treasuries descended to an all-time low (left chart). Market volatility in the same month was comparable to levels seen during the Great Recession (right chart).

Ominous Financial Market Indicators

0%

1%

2%

3%

4%

5%

6%

7%

8% 10-Year Treasury Constant Maturity Rate

0

10

20

30

40

50

60

70

80

90 CBOE Volatility Index (VIX)

Shaded area indicates the official length of the last recession. Sources: Board of Governors of the Federal Reserve System and Chicago Board Options Exchange



0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%New Renewed 10-Year Treasuries

Weighted Average Interest Rate TrendAll Loan Types

$0$5

$10$15$20$25$30$35$40$45$50

New Renewed

New and Renewed Loans Trend ($ Billions)All Loan Types

Commercial Loan Market Overview: March 2020

Source: AFS Pricing Dashboard – March 2020

Mar 20133.32%

Mar 20147.35%

Mar 20157.42% Mar 2016

6.82%

Mar 20171.03%

Mar 20181.24%

Mar 20195.69%

Mar 202011.00%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%11.0%12.0%

Perc

ent G

row

th

Growth in Outstandings - Monthly Trend)Year-over-Year Growth Rates(

0

10

20

30

40

50

60

Fee

Leve

l (in

BPS

) New Renewed

Upfront Fee Level (in BPS) TrendNew and Renewed Bilateral Loans



Commercial Loan Growth Surges in March


1.38% 1.58%2.61%

8.08%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

< $1M $1M to< $5M

$5M to< $25M

>= $25M

Perc

ent G

rowt

h

Growth in Outstandings - Dec 2019 vs. Mar 2020C&I Bilateral Loans

0.14%1.13%

2.53% 2.90%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

< $1M $1M to< $5M

$5M to< $25M

>= $25M

Perc

ent G

rowt

h

Growth in Outstandings - Dec 2019 vs. Mar 2020CRE Bilateral Loans

30.61%26.90%

20.68%22.84%

13.41%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

< $1M $1M to< $5M

$5M to< $25M

>= $25M CRE

Perc

ent G

rowt

h

Growth in Outstandings - Dec 2019 vs. Mar 2020Participations

C&I Participations

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%Pe

rcen

t Gro

wth

C&I Bilateral Loans CRE Bilateral Loans Participations

Growth in Outstandings - Monthly Trend(Quarter-over-Quarter Growth Rates)



Commercial Loan Growth by State

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 – March 2020

9.6%

9.4%9.3%

8.1%6.9%

9.0%4.6%

2.8%2.0%1.7%

-1.4%

Pennsylvania

FloridaTexas

New YorkCalifornia

MississippiOregon

IowaLouisiana

Utah

Growth in Outstandings - Dec 2019 vs. Mar 2020All Loan Types

Nat'l Avg

9.9%6.3%

4.9%4.2%3.9%3.5%

1.0%0.9%

-0.5%-0.6%

-5.1%

Michigan

TexasCaliforniaNew York

Florida

South CarolinaMississippi

AlabamaNorth Carolina

Minnesota


Nat'l Avg

34.9%26.7%

24.2%19.8%19.6%

21.2%17.6%

16.5%12.2%

9.5%8.4%

Arizona

MichiganFlorida

TennesseePennsylvania

New YorkCalifornia

TexasColorado

Connecticut


Nat'l Avg

5.0%4.2%

3.0%2.8%

1.8%2.1%

0.5%0.5%0.1%

-0.0%-1.3%

Pennsylvania

GeorgiaFlorida

CaliforniaNew York

IllinoisNew Jersey

VirginiaOregon

Massachusetts

Growth in Outstandings - Dec 2019 vs. Mar 2020CRE Bilateral Loans

Nat'l Avg



* 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 – March 2020

Drilling Down to the CBSA* Level

9.88%8.26%

0.53% 0.90%

15.06%

6.02%

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%

Perc

ent G

row

th

Growth in Outstandings - C&I BilateralMichigan

Dec 2019 to Mar 2020



The March spike in commercial loan growth was not confined to the Top 10 CBSAs; unlike prior months, commercial loan growth in March was broad-based geographically.

GDP and Loan Growth: Is There a Correlation?

* 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. Source: AFS Pricing Dashboard – March 2020Real GDP data sourced from the Bureau of Economic Analysis (BEA)

3.2% 4.5% 4.9% 4.9% 5.0%5.7% 6.3% 7.4%9.0%

11.1%12.8%

16.0%18.0%19.3%20.1%

22.9%

34.4%

1.1% 1.9% 1.5% 1.6% 1.6% 1.5%1.1% 0.9% 1.1% 1.9% 2.1%

4.1% 5.0% 5.2% 5.0% 5.1%

14.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

% G

row

thGrowth in Outstandings - December 2015 Baseline

Top 10 CBSAs vs. All Other Regions

Top 10 CBSAs

All Other Regions



Commercial Loan Growth by Industry

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 – March 2020

21.2%19.4%

13.6%10.6%10.2%

9.0%6.9%

2.3%2.3%

-1.3%-8.8%

Manufacturing (Wood, Chem)

Manufacturing (Machinery, Elec) Finance & Insurance

Retail Trade (Motor, Elec, Bldg)

Management

Health Care & Social Assistance

Public Administration Other Services

Educational Services Agriculture

Growth in Outstandings - Dec 2019 vs. Mar 2020All Loan Types

All Industries Avg

12.5%10.1%

6.2%6.1%

3.4%3.5%

1.6%0.5%

-0.9%-1.9%

-9.9%

Manufacturing (Wood, Chem) Finance & Insurance

Transportation (Air, Water, Truck) Professional, Scientific, & Tech

Health Care & Social Assistance

Admin, Support, Waste Mgmt Accommodation & Food Services

Wholesale Trade

Educational Services Agriculture


All Industries Avg

36.0%30.1%

28.4%25.7%

24.7%21.2%

24.4%17.4%

16.0%9.0%

7.7%

Retail Trade (Motor, Elec, Bldg) Manufacturing (Machinery, Elec)

Manufacturing (Wood, Chem)

Accommodation & Food Services Manufacturing (Food, Bev, Apparel)

Admin, Support, Waste Mgmt Finance & Insurance

Utilities Wholesale Trade Mining, Oil & Gas


All Industries Avg



Note: Industry categories based on North American Industry Classification System (NAICS).Source: AFS Pricing Dashboard – March 2020

Drilling Down to the 6-Digit NAICS Level

3.43%

6.11% 6.09%

8.59%

0.68%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

62Health Care & Social

Assistance

622Hospitals

622110General Medical &Surgical Hospitals

622310Specialty (except

Psychiatric &Substance Abuse)

622210Psychiatric &

Substance AbuseHospitals

Perc

ent G

row

th

Growth in Outstandings - C&I BilateralHealth Care & Social Assistance

Dec 2019 to Mar 2020



0.00%

1.00%

2.00%

3.00%

4.00%

5.00%


Weighted Average Interest Rate TrendC&I Bilateral Loans

$0

$5

$10

$15New Renewed

New and Renewed Loan Volume ($ Billions)C&I Bilateral Loans

New and renewed C&I bilateral volume increased rapidly in March, exceeding the previous peak in December (left chart). Pricing declines for C&I bilateral loans have mirrored the movement in the 10-year treasury yield (right chart).

New/Renewed Deal Flow and Pricing: C&I Bilateral Loans




0.00%

1.00%

2.00%

3.00%

4.00%

5.00%


Weighted Average Interest Rate TrendCRE Bilateral Loans

$0

$5

$10

$15New Renewed

New and Renewed Loan Volume ($ Billions)CRE Bilateral Loans

New and renewed CRE volume was basically flat in March when compared to the prior month (left chart). Over the same period, weighed average interest rates for new and renewed CRE loans trended downwards (right chart).

New/Renewed Deal Flow and Pricing: CRE Bilateral Loans




The volume of commercial loans tied to LIBOR was down 10 percentage points year over year, with most of the change occurring in 1Q2020 (left chart). The Prime rate has increased in popularity as a pricing benchmark for larger-end commercial loans (right chart).

Banks Shift Away from LIBOR


36% 30%

67% 60%80%

69%

29%29%

18% 21%

13%22%33% 39%

16%

1Q19 1Q20 1Q19 1Q20 1Q19 1Q20

< $3M $3-10M >= $10M

Other

Fixed

Prime

LIBOR

% of New/Renewed Bilateral Loan Volume by Loan Size

69% 68% 69% 65% 59%

17% 17% 17% 16% 23%

11% 11% 11% 14% 14%

1Q19 2Q19 3Q19 4Q19 1Q20

Other

Fixed

Prime

LIBOR

% of New/Renewed Bilateral Loan Volume



0.00%

1.00%

2.00%

3.00%

4.00%

5.00%


Weighted Average Interest Rate TrendParticipations

$0

$5

$10

$15

$20

$25

$30

$35 New Renewed

New and Renewed Loan Volume ($ Billions)Participations

New participation volume surged in March, more than tripling over the prior month (left chart). From February to March, new participations experienced the largest monthly decline in weighted average interest rate seen over the last year (right chart).

New/Renewed Deal Flow and Pricing: Participations




0

10

20

30

40

50

60

Fee

Leve

l (in

BPS

) New Renewed

Upfront Fee Level (in BPS) TrendNew and Renewed Bilateral Loans

10%15%20%25%30%35%40%45%

% Fe

e In

ciden

ce

New Renewed

Upfront Fee Incidence TrendNew and Renewed Bilateral Loans

Fees Remain an Unrealized Revenue Opportunity for Many Banks

Upfront Fee Incidence represents the number of obligations with Upfront fees as a percentage of all obligations.Upfront Fee Level (in BPS) represents the amount of Upfront fees assessed as a percentage of the original/last renewed amount for only those deals with Upfront fees.Source: AFS Pricing Dashboard – March 2020

0%10%20%30%40%50%

Acco

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Othe

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Reta

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% Fe

e In

ciden

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Mar 2019Mar 2020

Upfront Fee Incidence by Industry*New and Renewed Bilateral Loans

0102030405060

Acco

mm

odat

ion,

Ente

rtainm

ent,

&Fo

od

Finan

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Man

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Othe

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holes

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ade

Fee

Leve

l (in

BPS

)

Mar 2019Mar 2020

Upfront Fee Level (in BPS) by Industry*New and Renewed Bilateral Loans

afsvision.com

Special TopicCommercial Line of Credit Utilization



Prior to March, line utilization averaged 36% over time, with little variation relative to the historical mean. In a sharp divergence from this trend, line utilization spiked in March, as corporate borrowers drew down on existing lines to stockpile cash and brace for disruptions.

Line Utilization Spikes in March

Line utilization for commercial revolving lines of credit. Source: AFS Pricing Dashboard – March 2020

Mar 202045.7%

20%

25%

30%

35%

40%

45%

50%

2012 2013 2014 2015 2016 2017 2018 2019 2020

Revolving Line of Credit Utilization



All banks in the AFS Pricing Dashboard reported increases in line of credit (LOC) utilization for commercial borrowers in March, as evidenced by the upward shift in the bank distribution.

Banks of All Sizes Report Higher LOC Utilization

Line utilization for commercial revolving lines of credit. Distribution of banks in the AFS Pricing Dashboard database. Source: AFS Pricing Dashboard – March 2020

39.8% 38.9% 38.6% 37.8%

47.5%

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

Mar 2019 Jun 2019 Sep 2019 Dec 2019 Mar 2020

Revolving Line of Credit Utilization Max Bank

Min Bank

Median Bank



The March spike in LOC utilization was driven heavily by participated/syndicated borrowers. For bilateral loans, LOC utilization also increased meaningfully month over month in March.

Syndicated Borrowers Display Largest LOC Withdraws


Mar 202042.8%

Mar 202048.1%

20%

25%

30%

35%

40%

45%

50%

2012 2013 2014 2015 2016 2017 2018 2019 2020


Bilateral Loans

Participations/Syndications



Despite having fewer alternatives for liquidity, increases in LOC utilization for the smaller borrowers were modest compared with the trend for the larger-end borrowers.

Line Utilization Increases Highest for the Largest LOC


20%

25%

30%

35%

40%

45%

50%

< $100K $100-250K $250-500K $500K-1M $1-5M $5-25M $25-100M >= $100MDeal Size


Feb 2020 Mar 2020



High Profile Withdraws Under Lines of Credit



“Banks are being inundated with requests from hospitals for new lines of credit as they combat the spread of the coronavirus and see a steep drop in revenue because all but the most essential operations are postponed.

“Hospitals are facing higher costs due to spending on equipment like masks, ventilators and medication while revenue has ‘fallen off a cliff,’ said Wells Fargo Securities analyst George Huang.

“So far, hospitals have drawn down more than $1.3 billion from existing lines of credit, according to data compiled by Bloomberg. ‘Banks are being overwhelmed – it’s not just health care, it’s every major industry across the U.S.,’ said Eric Jordahl, a managing director at health care advisory firm Kaufman Hall. ‘The access is getting a little tighter, pricing is going up.’

“Not-for-profit hospitals don’t typically use lines of credit, but they are changing course because that would give them an alternative to liquidating investments in the wake of this year’s sell-off.”

– Bloomberg, April 13, 2020

Hospitals Race to Secure Big Credit Lifelines from Wall Street



LOC utilization increased significantly in 1Q2020, a trend reflected broadly across the industry spectrum. Consumer Discretionary displayed the largest quarter-over-quarter increase, with LOC utilization also rising significantly for the Health Care sector.

Line Utilization Spikes Across the Industry Spectrum

Line utilization for commercial revolving lines of credit. Industry segments based on the Global Industry Classification Standard (GICS). Excludes the Real Estate sector. Source: AFS Pricing Dashboard – March 2020

20%

25%

30%

35%

40%

45%

50%

ConsumerDiscretionary

ConsumerStaples Energy

FinancialsHealth Care

IndustrialsInformationTechnology

MaterialsTelecommunication

Services

Utilities

Revolving Line of Credit Utilization 4Q19 1Q20



“President Donald Trump promised to bail out U.S. oil companies that have been hard hit by a recent historic dive in crude oil prices — but some in the industry fear that may spark a backlash against the sector long known as a power player in Washington, D.C.

“Oil executives had told [Energy Secretary Dan Brouillette] that banks had ‘discriminated’ against their companies and made it difficult for them to receive loans.

“Republican Sen. Kevin Cramer of North Dakota said he had discussed with administration officials whether oil companies whose credit ratings had weakened to ‘junk’ status would be eligible for the Federal Reserve's corporate bond purchases under the CARES Act.

“Texas Railroad Commission Chairman Wayne Christian said during an online meeting Tuesday that coordinating efforts among U.S. states that together produce about 55 percent of U.S. oil would be a more effective way of propping up prices.”

– Politico, April 21, 2020

Trump Pledges Financial Aid to Oil Industry



Unprecedented Decline in Oil Prices

Source: U.S. Energy Information Administration

Negative Spot Price

In April, West Texas intermediate crude futures traded with a negative price, representing the first time in history that the benchmark fell below zero.



Line Utilization is Highly Correlated with the Price of Oil

* Who wins the oil price war? Bloomberg Businessweek. March 16, 2020.Line utilization for commercial revolving lines of credit. Energy Services defined as NAICS 213111 Drilling Oil & Gas Wells and NAICS 213112 Support Activities for Oil & Gas Operations.Sources: U.S. Energy Information Administration and AFS Pricing Dashboard – March 2020

For Energy Services companies, revolving LOC utilization increases significantly when the price of oil falls below $75 per barrel, well above the presumed breakeven price range of $40 to $50 a barrel.*

1Q20

25%

30%

35%

40%

45%

50%

$25 $50 $75 $100 $125

Revo

lvin

g Li

ne o

f Cre

dit U

tiliz

atio

n

Cushing OK WTI Spot Price FOB

Energy Services Subsector

HistoricalQuarters



Concluding Thoughts

Line utilization spiked in March, mirroring an increase of similar magnitude during the last recession.

Entering 2020, commercial banks are far better capitalized and poised to continue lending to creditworthy borrowers.

Will utilization of existing lines continue to climb in light of new government lending programs?

Will borrowing base discussions this Spring cut off much-needed liquidity to Energy borrowers?

AFS is committed to helping banks navigate through uncertain times.

afsvision.com

The BI Performance Dashboard:A New Market Intelligence Platform from AFS



Is My Bank Keeping Pace with the Market?

A simple, holistic picture of the current commercial banking landscape and a view

into how your organization stacks up against current market KPIs

Dispersion charts reveal competitive intensities in the marketplace

Drilling capabilities by Geography, Deal Size, and

Risk Rating



Comparative Performance Summary

Spread pricing is highly correlated with deal size

Quantitative detail reveals specific risks and opportunities for the Bank

The loan growth story varies widely across local geographic markets



Identify Leading Industry Drivers for Commercial Lending

Select the desired quarter

to see the key

performance metrics during

the period

You may also filter the report for specific industry sectors and subsectors

6 key performance

indicators provide a

comprehensive picture of

comparative industry

performance and volatility



The data table can be easily filtered to reveal the “biggest movers” in terms of credit risk. For example, the picture below illustrates the ten industry subsectors with the largest (adverse) increases in past due loans. NAICS 453 Miscellaneous Store Retailers experienced the largest rise in >60 day delinquencies during the latest quarter-over-quarter period.

Credit Risk: Biggest Movers

Weighted Average Probability of Default (PD) excludes nonaccruing loans.Low Pass is representative of credits risk rated below BBB.



How Can My Bank Price More Effectively in Its Core Geographic Markets?

Regionalized market scorecards to inform lending

teams of current trends in commercial loan growth and

pricing

The report can be customized based on

geography (CBSA), risk bracket, and product type

Select the desired quarters over which to analyze market

trends



Timely Market Intelligence: Los Angeles

Prime utilized more frequently down market

Average spreads up quarter over quarter

Balance growth driven by larger-end loans ($5–25M) tied

to LIBOR

Pricing dispersion (min, max, quartile

banks)



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

[email protected]

Don Dougherty+1 484-875-1334

[email protected]

Jeremy Chalson+1 484-875-1546

[email protected]



AFS Best Practices Leadership Programming

Upcoming Webinars

Topic DateCOVID-19 Impact on Commercial Lending Update May 13, 2020AFS Leadership Summit 2020 Virtual Series – First Session: AFSVision Cloud Technology May 19, 2020

RMA/AFS Risk Analysis Service Results Webinar May 21, 2020AFS BPLC LIBOR/SOFR Update May 2020 (TBD)

Register at http://www.afsvision.com/News-Events/Webinar-Registration

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Appendix



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?

$



Pricing Dashboard Regional Breakout

44

All regional geographic reporting in today’s presentation is broken down into seven geographic regions, as illustrated below.



Note: Geographic data refers to the location of the borrower, not necessarily the bank booking the loan. Source: AFS Pricing Dashboard – March 2020

Bilateral Loans Up for the Quarter Across Most States

Top 5 States1. California2. Florida3. New York4. Michigan5. Texas

Bottom 5 States1. Minnesota2. Arkansas3. Delaware4. Missouri5. Kansas

AL

ARAZ

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 2019 to Mar 2020

C&I Bilateral Loans

Negative Growth$0 to $50M$50M to $250M $250M to $500M Greater-than $500MInsufficient Data




CRE Balances Continue to Grow Across Most States

Top 5 States1. California2. New York3. Pennsylvania4. Florida5. Georgia

Bottom 5 States1. Utah2. Wisconsin3. Arizona4. Rhode Island5. Massachusetts

AL

ARAZ

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


CRE Bilateral Loans





Participations Rise Significantly and Broadly Across the Country

Top 5 States1. California2. New York3. Texas4. Florida5. Pennsylvania

Bottom 5 States1. Vermont2. North Dakota3. Montana4. South Dakota5. Wyoming

AL

ARAZ

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


Participations




Balance Growth by State and Industry: Bilateral Loans

*Based on grouping of similar 2-digit NAICS codes. “Other” includes Agriculture, Utilities, Information, Professional Services, Educational Services, Admin & Waste Mgmt, Public Admin, and Other Services. Excludes CRE 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 – March 2020

AL

ARAZ

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 2019 vs. Mar 2020

Bilateral Loans

Retail & Wholesale TradeHealth CareFinance & Management of CompaniesManufacturingMining and TransportationAccommodation, Entertainment, & FoodOther



Balance Growth by State and Industry: Participations

*Based on grouping of similar 2-digit NAICS codes. “Other” includes Agriculture, Utilities, Information, Professional Services, Educational Services, Admin & Waste Mgmt, Public Admin, and Other Services. Excludes CRE 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 – March 2020

AL

ARAZ

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 2019 vs. Mar 2020

Participations

Retail & Wholesale TradeHealth CareFinance & Management of CompaniesManufacturingMining and TransportationAccommodation, Entertainment, & FoodOther



Industry Classification: Major Sector Groupings

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



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.




Risk Key

Risk Rating


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)


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.




Risk Key

Risk Rating


9 Doubtful (Partial Loss Probable)


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.

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Additional FeaturesDelivering Market Data



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.

Delivering Market Data: Simple Pricing Grid

Min/Median/Max/Avg of Banks in MarketSegmentation 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 Average

LIBOR Equivalent

SpreadSouth 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



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.

Upcoming Renewals Report

For the borrower circled below, the Bank can reprice at more advantageous terms while still undercutting its competitors.




For enforcement of policy, reporting on all New and recently Renewed deals provides an audit of pricing exceptions.

Pricing Performance: Recent New and Renewed Deals


AFS Best Practices Leadership Council Webinar …...2020/04/30 · afsvision.com April 30, 2020...

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