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We are so thankful to our customers and referral sources. Despite the difficulties in the market, we have seen tremendous growth here at CLX over the past 12 months and we are just so grateful to all of you for trusting us and blessed to be able to work with so many great people. We are working hard to continue to evolve our business so we are in a position to help as many people as possible with their financing needs.
The Failure of Silicon Valley Bank "SVB" and What This Means for the Banking Markets
If you have not already seen the news, the failure of Silicon Valley Bank (ticker symbol “SVB”) on Friday March 10th has sent shock waves through not only the Banking industry but the greater economy as a whole. SVB, with $209 billion in assets, was the second largest Bank to collapse ever in U.S. history, and certainly the largest since the Great Recession in 2008.
Questions abound about what caused SVB’s collapse, how will it impact the economy, are other Bank’s at risk, and what will happen to SVB’s depositors? I shot this quick video over the weekend seeking to answer these questions and others and explain to the market exactly what happened to SVB. I encourage you to watch it.
As this story continues to evolve and further updates become available, as already seems to be happening this week, I will get more details out. But I think the key takeaway I can provide you with at this moment is that now is not a time for panic. The overall Banking industry is healthy. However, what happened to SVB could happen to other Bank’s if we do not learn a quick lesson about why SVB failed.
The World of Title Insurance with Stephen Kaempf
We recently dropped our latest Podcast Interview with my friend Stephen Kaempf. Most Borrowers do not take the time to understand the importance of Title Insurance and how it works, and they just see it as another expense they must pay to buy a property and close a loan. In this video we discuss why Title Insurance is so important for Borrowers, and although it is an expense, it is a very important part of the loan process and works to protect their interests. Stephen Kaempf brings his unique expertise working in the industry for years to this video. You can watch it via the link below.
How to Check How Healthy Your Current Bank Is
With the recent and very quick failure of Silicon Valley Bank, many people are now concerned about how healthy their Bank is. Most people do not know that whether your Bank is publicly traded or not, all Banks are required to provide very detailed quarterly financial statements to the Federal Deposit Insurance Corporation (FDIC) and these statements are publicly available for anyone to view. Below I am going to outline how you can view these statements for your own depository institution and key metrics I recommend looking at when reviewing these statements.
First, I like using the Federal Financial Institutions Examination Council (“FFIEC”) reports. I previously used the Call Reports (quarterly financial reports) directly from the FDIC website, but I find the FFIEC reports to be much more user friendly. Here is how I recommend you access the reports.
The first thing you need to do is go to the FFIEC website page for “Institution Reports”, which you can reach from clicking this link.
Secondly, you need to select a report. I recommend the “Uniform Bank Performance Report” as I feel this report provides the most detail and is the easiest to view. It also provides multiple years to review and compare at one time.
Then you need to put in the name of your financial institution. Most institutions can be found by name and state only. However, if you have a common bank name you may need to provide some additional details.
Once you select your Bank the report will be generated. You can move throughout the report by clicking the links on the left side of the screen.
There is a lot of data available in the Uniform Bank Performance Report. You will probably be asking yourself what is most important to view. I would need to write a novel to outline and explain everything contained in the report. However, I do wish to touch on some key statistics I recommend reviewing that will quickly tell you how healthy your institution is.
Income Statement – down at the bottom you can check to see if your Bank is profitable. Profitability is always a sign of health and that the Bank is generating profits and not losing cash. You can also compare how profitable the Bank has been over time. The goal of any institution is to see profit grow as the Bank grows.
Balance Sheet – most Banks are categorized by asset size. On the balance sheet you can see total assets but also see total loans, how much cash the Bank has, what investments the Bank has, and what debt the bank has. You can also see how much equity the Bank has. The more equity the better.
Summary Ratios – this is where you can look at key ratios for your Bank. There are many ratios that are important to view. Below are some key ratios I recommend reviewing:
a) Net Int Inc - TE to Avg Earn Assets - otherwise referred to as Net Interest Income, this represents what the Bank is earning on its assets. This is important because the main source of income for most Banks is interest income. Banks typically look to have this ratio be between 2.50% to 3.50% and the higher the ratio the better.
b) 30-89 Days Past Due - represents the percentage of loans currently past due. This number is important to look at period over period to see if there is a substantial change. The lower the percentage the better.
c) Total LN&LS-90+ Days PD & Nonaccrual - represents loans that are substantially past due, and the Bank is no longer reporting interest on. Again, you want this ratio low and you do not want to see a substantial increase over time.
d) LN&LS Allowance to LN&LS Not HFS - represents the amount of money in the Bank’s loan loss reserve as compared to total loans. Most Banks are seeking to have a loan loss reserve at 0.75% or higher as a percentage of total loans, but this number can vary widely for Banks based on past loan portfolio performance. If this percentage is substantially higher than the percentage in Item C above, it means the Bank has plenty of money on reserve to cover distressed loans. Keep in mind, it is rare for a Bank not to recover something on distressed loans, so even if this ratio is close to the ration in Item C above, it does not mean all of the reserves are being eaten up.
e) Net Loans & Leases to Deposits – also referred to as the “Loan to Deposit Ratio”, this ratio indicates what percentage of Bank deposits have been invested into loans. For most Banks a higher Loan to Deposit Ratio is better because it means they likely are earning more on their deposits. This ratio can get up to 100% and sometimes higher. Banks with low loan to deposit ratios are more likely to have deposits sitting in investments versus loans, which are more susceptible to immediate changes in the equity markets. However, due to the high quality and guaranteed return of principal these investments are required to have under normal circumstance, values typically fluctuate a very small amount (less than 2%) on these types of investments.
f) Tier 1 Capital – probably the most important number to look at, this covers how much capital the Bank has as compared to total liabilities. The higher the capital ratio the better. Most Bank’s for regulatory purposes want their Tier 1 Capital Ratio to stay above 12% at all times. Historically, the regulators would not take Banks over unless their Tier 1 Capital Ratios dropped below 4%, and during the Great Recession the regulators lowered that requirement to 2%. So even if the ratio is lower than 12%, if the Bank is profitable with a strong loan portfolio, there is no immediate reason to be concerned.
If your Bank is profitable, has strong capital, and the loan portfolio is performing well, you should be safe. Although nothing is ever certain, there are usually plenty of warning signs before a Bank gets into trouble. Again, the key is not to panic. If you have questions, please feel free to reach out to us. We are always more than happy to provide feedback.
Key Lending Programs to Consider in 2022:
Low Documentation Owner-Occupied Commercial Property Financing – Utilizing bank statements versus operating statements or tax returns, we can refinance owner-occupied commercial properties into either a 5/1 ARM or into a 30-year fixed rate mortgage with rates and provide cash-out up to 70% to 75% of property value depending on the property type and available cash flow. This program is great for businesses that lost money during Covid-19 but still had revenues and have equity in 51% or more owner-occupied commercial properties.
Low Documentation Commercial Investment Property Financing – Utilizing leases, a rent roll, an operating statement, and bank statements for the property versus tax returns, we can refinance commercial investment properties into either a 5/1 Arm or into a 30-year fixed rate mortgage with rates and provide cash-out up to 70% to 75% of property value depending on the property type and available cash flow. This program is great for real estate investments that did not report sufficient cash flow historically via tax returns or recently became stabilized and the Borrower is looking to get cash-out.
Conventional Bank Property Acquisition or Refinance Loans – We still have many Banks and Credit Unions being aggressive in the financing they are willing to provide for acquiring or refinancing owner-occupied commercial properties or acquiring or refinancing commercial investment properties (retail, office, industrial, etc.). We are still getting loans done with strong fixed interest rates, and are not only getting 5-year balloons done but also 7-year and 10-year balloons as well as some 5, 7, and 10-year ARM mortgages done as well (where the loan is fixed for 5, 7, or 10-years with the rate adjusting every 1, 5, 7, or 10 years after the initial fixed rate period for another fixed rate term), with an entire loan term of 20 to 25 years.
Single Family & Multi-Family Investment Property Program – using an application and either existing property income and expenses or projected property income and expenses, we can finance single family and multifamily investment properties on a 5/1, 7/1, 10/1 Arm or a 30-year fixed rate and cash-out up to 75% of value and purchase money up to 80% of cost depending on cash flow. Qualifications are largely based on the subject properties ability to support debt service at as low as a 1.00x debt service coverage ratio and the borrower’s credit score. This program is a great way to get cash-out of existing investment properties and maximize the return available.
SBA 7A Loans – whether buying a business, buying 51% or more owner-occupied commercial properties, starting a business, needing capital to expand your business, needing funding to refinance existing 51% or more owner-occupied commercial properties, refinance other business debt, or a combination of any of the above, SBA 7A loans can present a great solution for you. With 10-year loan terms for business debt, 25-year loan terms for real estate debt, and blended loan terms between 10 and 25 years for debt that is a combination of both owner-occupied commercial property debt and business debt, SBA 7A loans provide long-term amortizations reducing monthly debt service. SBA 7A loans can be used to consolidate existing debt and reduce monthly payments, while also getting additional capital to operate your business. Also, SBA 7A loans do not need to be fully collateralized by hard collateral and typically they come without any loan covenants (future conditions to hit like a debt service coverage ratio). For businesses that are struggling to hit existing debt service coverage ratios at their existing banks, sometimes a restructure into an SBA 7A loan will help them qualify by extending out the payments into a longer amortization. For Borrowers who are short the collateral to support existing debt obligations, the SBA can step in without being fully collateralized and provide the capital necessary to refinance debt or expand without being fully collateralized so long as the cash flow is there to support the loan based on SBA amortization schedules.
SBA 504 Property Acquisition and Refinance Loans – Utilizing the SBA 504 loan program, you can now qualify to purchase, refinance or construct 51% or more owner-occupied commercial properties and existing business equipment debt into long-term fixed rates via the SBA 504 program, including refinancing other existing government guaranteed debt such as existing SBA 504 loans and SBA 7A loans. You can secure 10-year fixed rates on equipment and 20 to 25-year fixed rates on 51% or more owner-occupied real estate with strong long-term interest rates. In some cases, you can even take cash out up to 85% of value to cover other business-related debt, and with no cash out can refinance up to 90% of value.
Become a CLX Referral Partner
Do you have customers in need of commercial financing and you do not know how to help them? Here at CLX we offer several programs in which you can become a referral partner and earn commissions on opportunities you run across. You can be involved as little as providing us with a name and phone number. Or if you prefer, you can help manage the client through the entire lending process. We have many training tools and marketing materials available to us to help you grow your own client base. Please contact us directly at info@commerciallendingx.com if you are interested in learning more about referring business to CLX.
About Commercial Lending X
CLX is a small business that specializes in helping other business owners get the business loans and financing they need to be successful. To learn more about CLX and the services we provide please check out our website at www.commerciallendingx.com. You can also contact us directly at info@commerciallendingx.com or via phone at 888-975-0007.
