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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©2018 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary.2November 1, 2018

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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



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



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



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



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



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



Linked Quarter‐over‐Quarter Balance Growth Slows in September


‐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



CRE Bilateral Balance Growth Driven by Larger‐End Loans


‐5.0%

0.0%

5.0%

10.0%

15.0%

Percen

t Growth


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



Linked Year‐over‐Year Balance Growth Gradually Rebounds


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)




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


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


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 – 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



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



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



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


Wholesale Trade

Retail Trade (Motor, Elec, Bldg)

Other Services


Educational Services Public Administration

Professional, Scientific, & Tech Agriculture


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)


Professional, Scientific, & Tech Accommodation & Food Services


All Industries Avg



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



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



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



Balance Growth by State and Industry: Participations


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



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



Overall Line of Credit Utilization Remains Flat


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



100

150

200

250

300

350


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




Volume vs. Spread Pricing: New/Renewed Bilateral LoansState and Industry Detail for the Most Recent 6‐Month Period


$31.6

$17.3

$10.1

$7.8

$6.3

$4.8

$3.9

$3.7

$3.7

$3.4

Finance & Insurance

Wholesale Trade





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



100

150

200

250

300

350


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




Volume vs. Spread Pricing: New/Renewed ParticipationsState and Industry Detail for the Most Recent 6‐Month Period


$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


Mining, Oil & Gas

Information

Wholesale Trade


Utilities

Manufacturing (Wood, Chem)

Transportation (Air, Water, Truck)


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



Total Annualized Fee Performance in September Up Slightly from Same Period a Year Ago


0

10

20

30

40

50

60

2017* 2018*

Total Fees Upfront Fees

Total Fees Paid (in BPS) ‐ Bilateral LoansYear‐over‐Year Comparison


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


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




Balance Growth: Industry Drivers by Geographic Region

The AFS Pricing Dashboard enables Users to pinpoint industry loan growth drivers across their unique geographic footprints.


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


17.2%

3.8%

‐5.5%

20.4%

‐2.3%

13.2%

Finance& Insurance

Real Estate Professional,Scientific,& Tech




Balance Growth: Industry Drivers by Geographic Region


1.4%

12.8%

8.0%

15.5%

‐3.1%

1.0%

Real Estate Finance& Insurance

Retail Trade(Motor, Elec,

Bldg)


2.9%

‐8.7%

18.8%11.3%

34.4%

‐15.4%Real Estate Manufacturing

(Machinery,Elec)

Finance& Insurance


47.3%

8.9%2.6%

8.7% 4.7%

‐6.3%Wholesale

TradeManufacturing(Wood, Chem)

Finance& Insurance


5.2%

15.9%

10.2%

‐1.4%

8.3%

4.1%

Real Estate Finance& Insurance

Manufacturing(Machinery,

Elec)


Special TopicRisk and Return Profiles by Geography

and Industry

©2018 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary.



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.



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



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



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


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%


% Growth Outstandings, YTD 2018

44.1 45.9


Spread Per Unit of Risk, YTD 2018



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


4.10

4.62



8.32%1.67%



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





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


6.50%

2.21%




4.16

4.54




49.745.7






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


4.50 4.54



4.87%

1.91%



46.2 45.7





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


4.894.53



‐0.61%

2.38%



51.045.6





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


5.084.54




49.3 45.8




‐1.89%

2.26%






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



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]



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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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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?



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)


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




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



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.




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.


Winners and Losers Commercial Lending Dynamics...2018/11/01 · November 1, 2018 Winners and Losers...

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