BankSpeak December 15, 2011 Bill 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 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”

Financial gpsCompany “fiscal”Bankspeak

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 under quick links, bankers, institution directory, bank find, name and state of bank Look for capital-asset ratio (8-12%), 85% is high

Google Alerts… If you have a Google profile, you can set up an 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 Q /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”

Questions? Bill McDermott