U.S. Bancorp
Equipment Finance
BILL PURCELL
U.S. Bancorp Equipment Finance, Inc.
2002 - $7.5 Billion in Assets
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Capital Equipment Group
Business Equipment Finance Group
Machine Tool Finance Group
U.S. Bancorp/Oliver-Allen
Syndication Group
Vendor Finance Group
U.S. BANCORP EQUIPMENT FINANCE, INC.
History:
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Founded 1971 (Large Ticket Leverage Leases)
1980’s Generalist Lessor
1990 Machine Tool Finance Corporation
1995 WestOne Leasing
1999 FirstBank Leasing
2000 Oliver-Allen Corporation (Technology)
2000 Lyon Financial Services (Small ticket)
2001 Firstar Leasing
Cultural Issues
• Leasing Companies and Banks are Different!
• Transactional Business vs. Relationship
Business
• Sales Culture vs. Marketing Culture
• Pay for Performance vs. ?
• Analysis, Reporting, Monitoring
• Stand alone business vs. Shared Services
• Entrepreneurial vs. Structured Bureaucracy
• Non Level Earnings vs. Level run-rates
Challenges
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Asset Growth
Cross-Selling with Bank Franchise
Technology
Credit
Cultural Issues
ELA Convention
Jim Renner
October 14, 2002
Benefits To A Bank
Grow Assets
! Support Bank Customers
! Utilize Tax Benefits
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Annual Volume
2500
2000
1500
1000
500
0
1992
Bank
Large Ticket
1997
2001
Wholesale
Acquisitions
Vendor/Direct
Concerns
Understanding by Bank Management
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Tax Benefits
Operating Leases
Leverage Leases
Initial Direct Costs
Perceived vs. Actual Risks
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Credit
Collateral
Residual
Operational Risk
Returns
!High
Cost of Operations
!ROE
Target = Bank 20%
Advice
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Communicate, Communicate, Communicate
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Manage Your Boss
INVESTMENT BANKING
Minneapolis
San Francisco
New York
London
Chicago
Menlo Park
Los Angeles
Seattle
The Role of Leasing in the Banking Franchise
41st Annual ELA Convention
San Francisco, CA
Tel Aviv
October 13 - 15, 2002
Robert Rinek - US BANCORP PIPER JAFFRAY INC.
THE ROLE OF LEASING IN THE BANKING FRANCHISE
On an overall
basis, the U.S.
($ in billions)
Bank Affiliates
account for 31.5%
share of the total
for all Monitor 100
companies. The
Independents 19 companies
$55.0
NEC - 2
companies $24.0
Foreign Affiliates
- 10 companies
$13.4
group is
U.S. Bank
Affiliates - 40
companies $152.1
2.8%
represented by 40
11.4%
bank affiliates
who collectively
5.0%
31.5%
22.5%
reported $152.1
26.8%
billion in net
assets.
Captives - 22
companies $108.7
Source: Monitor 100
U.S. Industrial
Affiliates - 7
companies $129.3
THE ROLE OF LEASING IN THE BANKING FRANCHISE
Eight out of the
top 20 firms in the
Monitor 100 were
bank affiliated
leasing
companies
• CitiCapital
• Fleet Capital
• Banc of America Leasing and Capital Group
• Wachovia Leasing
• U.S. Bancorp Equipment Finance
• Key Equipment Finance
• Wells Fargo Equipment Finance
• Bank of New York Capital Funding
THE ROLE OF LEASING IN THE BANKING FRANCHISE
Distinguished
panel: large and
mid-size bank
affiliates
• Don Campbell, President
– Commerce Commercial Leasing
• Jim Renner, President
– Wells Fargo Equipment Finance
• Matt Shieman, President
– The Matsco Companies
• Bill Purcell, President
– U.S. Bancorp Equipment Finance
The Role Of Leasing In
The Banking Franchise
Matthew Shieman
The Matsco Companies
Presentation Overview
• Matsco’s journey from a small family
owned leasing company to being acquired
by Greater Bay Bancorp
• Key Drivers that influenced Management’s
decision to sell
• How does Matsco strategically fit into
Greater Bay Bank
• Operational issues
• Summary Conclusions
Matsco’s Journey
• Focus on developing a niche market and create
marketing momentum within this market
• Relationships with people within lending
institutions that offered different products such as
warehouse lines, term lines, asset securitization,
residual financing, subordinated debt.
• Managing internal growth, leverage, cost of
capital
• 1999 leasing industry was doing a lot of business
and had significant liquidity but margins were
compressed and profit growth was slowing down
• Decision to partner with larger financial institution
rather than remain independent
Key Drivers Of Influence
• How would Matsco fit into a Bank
• Outcome of previous acquisitions
• Portfolio buy vs. acquisition and
commitment to grow platform
• Location of buyers – Local vs. 2,000 miles
away
• Access to senior management
• Valuation and contract terms
• Historical track record of the institution
Strategic Fit
• Geographic and product diversification
• Fixed rate contracts with longer repayment
terms
• Cross selling opportunities
• New Market opportunities
Operational Issues
• National Specialty Finance Company vs.
Regional Bank
• Regulatory Compliance and Reporting
• Lease vs. Loan products
• Credit philosophy – Balance Sheet vs.
Cash Flow
• Internal System Requirements
• Balance in servicing the customer and
compliance with regulations
Summary
• Spend equal amount of time on the issues
relating to people and management
interface compared to the Financial
Analysis. In the end the people generate
the numbers
• Establish reporting requirements (internal
and regulatory) upfront
• Enjoy the journey
The Role of Leasing in the
Banking Franchise
Presented by Don Campbell
President Commerce Commercial Leasing
Agenda
Fidelity / First Fidelity Leasing
Sub of Fidelity Bank
Tokai Financial Services / DLL
Sub of Tokai Bank
Commerce Commercial Leasing
Sub of Commerce Bank
Fidelity / First Fidelity Leasing
! Wholly Owned Sub of the Bank
! Small Business / Middle Market
! Regional Bank
Fidelity / First Fidelity Leasing
Why Did The Bank Start a Leasing Company?
! Auto Leasing Success
! Full Tax Bill
! Bring in Experience to Run a Profitable Business
Fidelity / First Fidelity Leasing
What Was The Model?
! Direct Origination - Mid Market
! Equipment Expertise
! Use ITC & Depreciation
! Single Investor
Fidelity / First Fidelity Leasing
What Were The Strengths?
! Strong Origination Team / Win Prospects, Refer to Banker
! Some Synergies With Bank / Lender Referral (Breakfast
with Bernie)
! High Yielding Portfolio
! Sheltered Tax Bill
! Conservative Residuals = More Profits
! Growth Model. $0 to $900 Million
Fidelity / First Fidelity Leasing
What Were The Weaknesses?
! Bank Loan Officers - No Credit for Leases
! Stay in Footprint
Tokai Financial Services / DLL
! Wholly Owned Sub of the Bank
! Small Ticket
! International Bank
Tokai Financial Services / DLL
Why Did The Bank Buy MasterLease?
! Presence in USA Growth Market
! Profitable Business
! Support Japanese Bank Customers With Distribution
in USA
! Platform to Explore Other USA Businesses
Tokai Financial Services / DLL
What Was The Model?
! Vendor Driven
! Small Ticket - Some Middle Market
! Speed of Delivery
! Most Profitable Sub of the Bank
! Growth
! Managed from Japan as an Investment
Tokai Financial Services / DLL
What Were The Strengths?
! Strong Origination Team
! Growth 20% Per Year
! Equipment Expertise
! Bank Developed Deeper Relationships W/ Existing
Customers Through TFS Success
! Japanese Executives in USA Called on All Japanese
Companies
! Japanese Insurance Companies Lent into TFS deepening
Relationship in Japan
Tokai Financial Services / DLL
What Were The Weaknesses?
! New Industry Penetration was Challenging
! Larger Transaction Vendor Programs Difficult to Get
Acceptance
! As Japanese Economy Weakened Money Cost Increased
Commerce Commercial Leasing
! Wholly Owned Sub of the Bank
! Small Ticket & Middle Market
! Regional Bank
Commerce Commercial Leasing
Why Did The Bank Start a Leasing Company?
! Another Product to Give Customers & Prospects
! Full Use of Tax Bill
! New Business Development Tool
! Large Healthcare Portfolio - Offer Operating Lease
Product
! Another Profitable Division
Commerce Commercial Leasing
What Was The Model?
! Direct Origination - Small Ticket & Middle Market
! Bankers Get Full Volume Credit for All Lease Written
! Credit Underwritten by Bankers
! Redeploy Deposits
Commerce Commercial Leasing
What Were The Strengths?
! Bankers are Motivated to Refer Lease Business
! More Fees & Deposits
! Growth Model
! Strong Service Culture = More Business
! Ability to Get Higher Yielding Business When We Control
the Relationship
! Top Down / Bottom Up Support
! When Leasing Prospects Turn into Bank Customers + + +
! Another Profitable Business
Commerce Commercial Leasing
What Were The Weaknesses?
! Stay in Footprint
! Credit Culture - Know the Customer