Executive Brief
Maximizing Commercial Loan Income with
S&P Commercial Loan Pricing Service
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Introduction
Malvern National Service and Standard & Poor’s Partnership
Malvern National Services is a consulting and professional services company serving
the community bank market. Standard and Poor’s has formed a partnership with
Malvern National Services to introduce S&P’s highly successful Commercial Loan
Pricing Service to community banks. The service enables community bankers to
obtain the optimum levels of pricing on their commercial loan portfolio due to S&P’s
market intelligence information and support services. The service consistently
delivers excellent results with every bank client and supports over 5,000 loan officers
in the United States.
A Great Opportunity to Maximize Commercial Loan Margins
Commercial Loan Pricing in the mid-size to small commercial loan market lacks
transparency to dependable pricing information compared to other debt markets.
Bankers usually determine their own pricing strategy that is generally derived from
cost of funds, relationship valuation or personal knowledge; however this is done
without any comparison to comprehensive and objective market pricing information.
S&P experience has found that most banks have a high percentage of lenders who
consistently price both new loans and renewals under the market. Banks that use
S&P’s Commercial Loan Pricing Service generally find their lenders improve their
net margins between 10-30 basis points after pricing closer to the market. This is
accomplished without losing business nor degrading quality of the loan portfolio.
Comparison of Lending Teams
Before Using S&P Pricing Service
BPS
Pricing Based on
Comparable Factors
• Interest Spreads
• Loan Fees
• Adjustments for Risk
• Loan Type & Structure
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How the Service Works
The Commercial Loan Pricing Service is delivered to each bank with data that is tailored to
the bank’s specific markets and organizational structure. The following deliverables are
included in the service.
Creating Pricing Guidelines for Individual Markets
The Commercial Loan Pricing Service provides pricing guidelines
that are aligned to local markets and business segments. S&P
updates the pricing data every 30 days which ensures lenders get
current market pricing and trends. At the same time, the pricing
recommendations are complementary to the bank’s existing pricing
and profitability guidelines.
Deal-Specific Renewal Reports for Loan Officers
Each month, loan officers receive reports drawn up for their own
portfolio and markets. The loan officer reports include updates on
the market interest rate spreads and fees adjusted by risk rating for
loan types and structures. In addition, upcoming renewal reports
are provided with pricing information that sets realistic minimums
and stretch targets. The pricing information can be integrated with
the bank’s existing pricing process and systems.
Management-Level Analysis/Reporting
Management receives reports that provide reporting on how the
loan portfolio is performing to the market as well lending teams and
individual loan officers. The analysis enables management to focus
on large upcoming opportunities and gives a retrospective look at
successes and shortfalls of performance. As business plans change,
management can uncover tactical changes in execution strategy and
can fine-tune pricing strategies and practices.
Training and Education for Lenders and Management
As part of implementation, S&P provides training on how to use the
service. Training topics also include in-depth analysis of trends,
business strategies and outlook that S&P sees in the market. The
lending teams will be presented with information that will help
them to uncover pricing opportunities in the market. After
implementation, market update seminars are held twice a year.
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Support the Management Process
S&P recognizes that every bank has its own process for setting pricing guidelines
followed by the individual loan approval process. The Commercial Loan Pricing
Service can be easily integrated into bank’s existing pricing process. Success depends
on making sure the Commercial Loan Pricing Service is aligned and integrated to
your process as illustrated in the chart below.
The Positive Impact on Lender Performance
The entire lending team will benefit with increased knowledge of their local market
data to better manage their preparation to close commercial loan business. S&P has
found that lenders who use this service are better prepared, have a higher level of
confidence and improve their ability to sell value over price with their business
negotiations.
In addition, management receives stronger feedback on lender performance and are
better equipped to judge individual performance based on relative market conditions.
The end result is performance evaluations are more balanced and objective when
reliable market data is included in lender performance criteria.
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The Bottom Line
S&P has consistently delivered tangible value with the Commercial Loan Pricing
Service. Banks who have used this service have experienced the following results:
We would like the opportunity to be of further service to you and would be glad to
schedule an executive session to review in detail how the service could perform for
your bank.
Brian Blair, Malvern National Services, is the sales contact for the S&P Commercial
Loan Pricing Service in the community bank market. He can be reached at the
contact information listed below.
Brian Blair
Malvern National Services
Phone: 610-644-1366,
Email: bblair@malvernnational.com
What S&P Client Bankers Are Saying
S&P’s bank clients are very pleased with the results of the service. Listed below are
recent communications from a new client and a two year client:
Recent Status Report from New Bank Client
“We are about half way into year 1 of the S& P Pricing Optimization Program .
We are on track to beat the estimated revenue gains despite the fact that we are
operating in a very challenging pricing environment . We have been able to achieve
these pricing improvements without putting at risk our volume, relationship
profitability or other business objectives.”
Excerpt From Recent Memo to Banking Team To Prepare for 2012
“The Bank has been using Standard & Poor’s for the last 2 years to provide us market
intelligence around the pricing of our loans. The success of the partnership has been
very good.
The Bank has been particularly successful in preserving strong pricing on renewing
credits, even while maintaining a more competitive stance on originations. In
aggregate, the Bank has moved from on-market to above-market performance. “
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