What are The Bancorp Inc's Business Segments?
We currently focus our lending activities upon four specialty lending segments:
SBLOC loans, automobile fleet and other equipment leasing, SBA loans and loans
originated for sale into CMBS and CLO capital markets.
SBLOC. We make loans to individuals, trusts and entities which are secured by
a pledge of marketable securities maintained in one or more accounts with respect
to which we obtain a securities account control agreement. The securities pledged
may be either debt or equity securities or a combination thereof, but all such
securities must be listed for trading on a national securities exchange or automated
inter-dealer quotation system. SBLOCs are typically payable on demand. Most of
our SBLOCs are drawn to meet a specific need of the borrower (such as for bridge
financing of real estate) and are typically drawn for 12 to 18 months at a time.
Maximum SBLOC line amounts are calculated by applying a standard ‘advance
rate’ calculation against the eligible security type depending on asset
class: typically up to 50% for equity securities and mutual fund securities and
80% for investment grade (Standard & Poor’s rating of BBB- or higher
or Moody’s rating of Baa3 or higher) municipal or corporate debt securities.
Borrowers generally must have a credit score of 660 or higher, although we may
allow exceptions based upon a review of the borrower’s income, assets and
other credit information. All SBLOCs are with full recourse to the borrower. The
underlying securities that act as collateral for our SBLOC commitments are monitored
on a daily basis to confirm the composition of the client portfolio and its daily
market value. Although these accounts are closely monitored, severely falling
markets or sudden drops in price with respect to individual pledged securities
could result in the loan being under-collateralized and consequently in default
and, upon sale of the collateral, could result in losses to the Bank.
Leases. We provide lease financing for commercial and government automobile fleets
and, to a lesser extent, provide lease financing for other equipment. Our leases
are either open end or closed end. An open end lease is one in which, at the end
of the lease term, the lessee must pay us the difference between the amount at
which we sell the leased asset and the stated “residual value.” “Residual
value” is a contractual value agreed to by the parties at the inception
of a lease as to the value of the leased asset at the end of the lease term. A
closed end lease is one in which no such payment is due on lease termination.
In a closed end lease, the risk that the amount received on a sale of the leased
asset will be less than the residual value is assumed by us, as lessor. While
we do not have specific underwriting criteria for our lease financing, we analyze
information we obtain about the lessee, including financial statements and credit
reports, to determine the lessee’s ability to perform its obligations.
SBA Loans. We participate in two loan programs established by the SBA: the 7(a)
Loan Guarantee Program and the 504 Fixed Asset Financing Program. The 7(a) Loan
Guarantee Program is designed to help small business borrowers start or expand
their businesses by providing partial guarantees of loans made by banks and non-bank
lending institutions for specific business purposes, including long or short term
working capital; funds for the purchase of equipment, machinery, supplies and
materials; funds for the purchase, construction or renovation of real estate;
and funds to acquire, operate or expand an existing business or refinance existing
debt, all under conditions established by the SBA. The terms of the loans must
come within parameters set by the SBA, including borrower eligibility, loan maturity,
and maximum loan amount. 7(a) loans must be secured by all available assets (both
business and personal) until the recovery value equals the loan amount or until
all assets of the borrower have been pledged. Personal guarantees are required
from all owners of 20% or more of the equity of the business, although lenders
may also require personal guarantees of owners of less than 20%. Loan guarantees
can range to 85% of loan principal for loans of up to $150,000 and 75% for loans
in excess of that amount.
The SBA loan guaranty is paid to the lender after the liquidation of all collateral,
mitigating the losses due to collateral deficiencies up to the percentage of the
guarantee. To maintain the guarantee, we must comply with applicable SBA regulations
and we risk repair or loss of the guarantee should we fail to comply. 7(a) loan
amounts are not limited to a percentage of estimated collateral value and are
instead based on the business’s ability to repay the loan from its cash
flow. If the business generates inadequate cash flow to repay principal and interest
and borrowers are otherwise unable to repay the loan, losses may result if related
collateral is sold for less than the unguaranteed balance of the loan. Losses
may result if related collateral is sold for less than the unguaranteed balance
of the loan. Because these loans are generally at variable rates, higher rate
environments will increase required payments from borrowers, with increased payment
default risk. As a result of a wide variety of collateral with very specific uses,
markets for resale of the collateral may be limited, which could adversely affect
amounts realized upon sale. The 7(a) program is funded through annual appropriations
approved by Congress matching funding requirements for loans approved within the
budget year. Should those appropriations be reduced or cease, our ability to make
7(a) loans will be curtailed or terminated.
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