U.S. Bancorp Equipment Finance BILL PURCELL
U.S. Bancorp Equipment Finance, Inc. 2002 - $7.5 Billion in Assets Capital Equipment Group Business Equipment Finance Group Machine Tool Finance Group U.S. Bancorp/Oliver-Allen Syndication Group Vendor Finance Group
U.S. BANCORP EQUIPMENT FINANCE, INC. History: Founded 1971 (Large Ticket Leverage Leases) 1980 s Generalist Lessor 1990 Machine Tool Finance Corporation 1995 WestOne Leasing 1999 FirstBank Leasing 2000 Oliver-Allen Corporation (Technology) 2000 Lyon Financial Services (Small ticket) 2001 Firstar Leasing
Cultural Issues Leasing Companies and Banks are Different! Transactional Business vs. Relationship Business Sales Culture vs. Marketing Culture Pay for Performance vs.? Analysis, Reporting, Monitoring Stand alone business vs. Shared Services Entrepreneurial vs. Structured Bureaucracy Non Level Earnings vs. Level run-rates
Challenges Asset Growth Cross-Selling with Bank Franchise Technology Credit Cultural Issues
ELA Convention Jim Renner October 14, 2002
Benefits To A Bank! Grow Assets! Support Bank Customers! Utilize Tax Benefits
2500 Annual Volume 2000 1500 1000 500 0 1992 1997 2001 Bank Wholesale Vendor/Direct Large Ticket Acquisitions
Concerns Understanding by Bank Management! Tax Benefits! Operating Leases! Leverage Leases! Initial Direct Costs Perceived vs. Actual Risks! Credit! Collateral! Residual! Operational Risk Returns!High Cost of Operations!ROE Target = Bank 20%
Advice! Communicate, Communicate, Communicate! Manage Your Boss
INVESTMENT BANKING Minneapolis San Francisco New York London Chicago Menlo Park Los Angeles Seattle Tel Aviv The Role of Leasing in the Banking Franchise 41st Annual ELA Convention San Francisco, CA October 13-15, 2002 Robert Rinek - US BANCORP PIPER JAFFRAY INC.
THE ROLE OF LEASING IN THE BANKING FRANCHISE On an overall basis, the U.S. ($ in billions) Bank Affiliates account for 31.5% share of the total for all Monitor 100 companies. The group is represented by 40 bank affiliates Independents - 19 companies $55.0 NEC - 2 companies $24.0 11.4% 5.0% Foreign Affiliate s - 10 companies $13.4 2.8% 31.5% U.S. Bank Affiliate s - 40 companies $152.1 who collectively reported $152.1 billion in net 22.5% 26.8% assets. Captives - 22 companies $108.7 U.S. Industrial Affiliates - 7 companies $129.3 Source: Monitor 100
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