bankspeak december 15, 2011 bill mcdermott-mcdermott financial solutions
TRANSCRIPT
BankSpeak
December 15, 2011Bill McDermott-McDermott Financial Solutions
Looking in the Vault
• How many of you have found banker speak to be confusing?• What sorts of bank speak and banker think are foreign
to you?
• How many of your clients have an active LOC?• How many have had their line increased in last
12-18 months?• How many have had their bank restrict terms of
their LOC?
Outline• Trying to speak your banker’s language and finding it difficult?• Who’s financial health is the issue?, your clients or ther banks, the
Company “Fiscal”• Short cuts to getting the financing your clients need to manage
their cash flow• Special topics, 30 day payouts, covenant defaults, forbearance
agreements• What’s your destination, the Financial “GPS”
Who’s financial health is at issue?• Do Your Own “Fiscal”• Do a Banker’s SWOT• 3 years of financials - analyze them, trends… SWOT….
• Banks want to know about:• Liquidity• Leverage• Profitability • Activity
Bankers have their own language … • Everything is about risk/reward• Bank reward is 5% gross margin with no upside, therefore risk
tolerance is low
• 5 C’s-• Character• Collateral • Cash flow • Credit• Conditions
Bankers have their own language … Where does your client/company pose the greatest risk for a banker?
5 C’s-• Character• Collateral • Cash flow • Credit• Conditions
Is Your Bank on a Watch List?
• Has it been sold or acquired in the last 5 years?
• Do you sense your loan is in a special assets category?
For your bank…
• All banks are high regulated. Because of bank failures, regulatory environment is tight• Regulators care about capital adequacy, asset
quality, management, earnings and liquidity• www.fdic.gov, under quick links, bankers,
institution directory, bank find, name and state of bank• Look for capital-asset ratio (8-12%), <1%
problem loans, profitable or not and loan/deposit ratio >85% is high
Google Alerts…• If you have a Google profile, you can set up an
email or text alert to obtain daily information about a bank
Examples:• PNC insures RBC merger is fast track south from
DC to Atlanta - 11/10/11• UCB reports net loss of $6.2 million for Q3 2011 -
10/31/11• Synovous posts profit after 3 years - 10/27/11(I post these for you on social media daily)
Gone Shopping? • How many of you/your clients have gone shopping for a new
banker relationship in the last 2-3 years? • What did you learn?
One of the best shortcuts to finding financing for your business
• Find a bank that is profitable, has adequate capital and is either raising capital, paying back TARP money or both
• You can’t assume every bank is lending money just because their doors are open
• MOU, Consent orders and Cease and Desist orders are public records, just know where to look (google search-bank name consent order)
BankSpeak-new loan, annual review
-”anxiety is the price you pay for the unprepared mind and mouth”
If you find out your bank has a health issue, then I would suggest having a back up plan. You want to control your financial destiny, not put it in the hands of your bank/banker
Prepare and Propose• For a new loan at a new institution, the bank wants
1. 3 years of financial statements or tax returns
2. Interim financial statement with comparable a year ago (10/31/11 vs 10/31/10)
3. For a line of credit, they will request AR and AP aging, may request comparable a year ago
4. Personal financial statement and two years personal tax returns
5. Real estate projects or LLC’s will ask for separate financial statement or tax return, rent roll
6. Contractors (job status reports-contracts in progress, contracts completed)
Present….
-Presentation to the bank should incorporate the 5 C’s of credit for the bank• Character• Collateral• Cash flow• Credit • Conditions
-Demonstrate you have:• A Command of your financials• A Clear request • A Compelling case
Special situations and circumstances• 30 day payout-your commitment letter may require you to
take your line of credit to 0 for 30 days in a year• Covenant default- you may have accidentally tripped a debt to
worth or cash flow covenant in your commitment letter
If any of these happen…
• Options could be…• Your bank declares a default
• You enter into a forbearance agreement, you bank agrees to forbear or delay the close of your business in exchange for something
• The bank forecloses on your business
• You declare bankruptcy
Your Financial GPS
• What’s your destination? (sale, merger, esop, milk it for all it’s worth, then close it?)• Your CPA, Attorney or Banker (if you
have one) could act as your guide.• Covey says “start with the end in mind”
