INTERVIEW
Industry Professional
Interview
Robert T. McDaniel
Vice President
Senior Loan Officer
Compass Bank
101 South College Street
Auburn, Alabama, 36830
334-887-2265
Interview was conducted on December 6, 2000.
1.
Could you describe the culture of the bank?
Sales oriented, important to
get new business and take care of those already in our service.
Compass Bank also has a strong credit culture and does not normally do
speculative lending. With that
said, construction lending is a big part of the bank’s business.
2. Would you say it is
more conservative in nature or more willing to manage risk for a greater return?
Compass bank is interested
in helping contractors with equipment financing and construction cost loans.
The bank has loaned out money for financing apartments, and other
developments. It greatly depends on
the project and the presale tenants as well as the capital of the developer or
contractor.
We expect a personal guarantee for the construction loan but we do not require the borrower to have 100% of his capital equal the amount of loan he or she desires. As a percentage we would expect the contractor or developer to have 20%-30% in liquid capital.
3.
What is the future of banking?
Financial services will
continue to become more involved. Compass now offers life insurance, investment products, bond
issues, and “swaps” for our larger customer.
The bank is interested in growth of fee income in addition to the
standard interest income.
4.
What is a “swap”?
A borrower is allowed to
transfer his balance between a fixed and floating interest rate, which ever is
better for him or her at the time. This is where our sales oriented goal becomes important.
We monitor the balance of our larger customers and then contact and visit
people and help them decide what is best.
5. What does a prospective
new general contractor need to bring to the banker to improve his chances of
receiving a start up loan or establish a line of credit?
We do not normally give out
large loans to a new business without him or her having a substantial portion of
cash or collateral on hand. We are very willing to finance equipment or give a line of
credit but will not normally loan a large amount of money without a good track
record to back the deal.
6. What kind of loan can a
residential / light commercial contractor expect to receive from the bank for a
$100,000.00 start up loan for commercial work?
We would want him to build
more cash up if it is a brand new relationship but will finance specific
projects or equipment on a case-by-case basis.
7. One of the contractors
that came to speak with our Executive Issues class mentioned having three
different kinds of accounts with the bank: a money account, a deposit account,
and a zero balance check writing account. Do you offer this type of system and
could you explain how one gets involved with it?
Compass Bank offers this system for large balances. We want to help the business owner to succeed by keeping his earnings. We freely contact people with large balances and offer them this system. What it entails is keeping 100% of funds in an overnight investment portfolio then when a check comes into the bank we transfer the amount of the check into the checking account to cover the bill.
8.
What is the key to a contractor being successful?
9. Do you establish any kind of relationship
with the potential borrower’s bonding company?
We will contact the bonding
agent for some background information and will occasionally ask for references.
We will also ask the borrower what the purpose of the loan is, and how
much working capital is available.
10. If a contractor wanted
to start a development project, say Game Day Condominiums in Auburn, where would
he start in order to get the development money from the bank?
· Have a proven track record of same type projects.
· Previous relationship with bank
· Cash on hand
·
Financial statements from the past three years.
The Game Day condominiums
are a hot item; right now they are building them at Alabama, Georgia, and
Tennessee.
11.
What types of risk do you look for?
· Financial Risk to the bank
· Credit side-projections and how the developer plans to pay us back.
· We also hire an appraiser for large projects equal to or greater then $100,000
12. Do you use a third
party consultant in reviewing potential development or construction projects?
(Compass
Bank does not hire a special construction consultant like SunTrust)
· Appraiser is given the duty to review drawings and specifications
· Hire a building inspector to monitor project
·
In some cases will also do a feasibility study
13. What documents does
the bank require when a borrower is applying for a construction loan?
· Personal finance statements
· Business financial statements of past two to three years.
· Plans and specifications to be given to the appraiser
· Rent Roles if retail is the scope. Compass looks at “credit tenants” which are like the rent roles but used for finding the big anchors for the leasing of a project. A credit tenet would be J.C. Pennies in a new mall development.
· On very rare occasions the bank will also conduct an engineering study.
14.
What are the key indicators for evaluating the future market?
· Occupancy rates in the area
· Number of vacancies of retail space
· Local economy.
15. What are the banks over
riding goals in the commercial lending department?
· Make money
·
Manage risk and manage outstanding credit
Interview Summary
Mr. Robert T. McDaniel is a Vice President at Compass Bank in Auburn, Alabama. He is the senior loan officer for commercial lending. His department works with commercial type loans, including development loans, construction loans, and equipment and building financing.
Compass Bank offers asset-based working capital lines of credit from $250,000 to $1,250,000 that is designed for smaller businesses that have sales of $1,000,000 to $10,000,000. Compass bank is geared toward residential builders and small commercial lending as well as offering acquisition and development financing for developers (Compass Bank. 3, December 2000).
Highpoints of the interview:
· Compass Bank was the first bank in Alabama to form branches outside the state. First branch was opened in Texas in 1987 and the bank has since moved into the Sunbelt states such as Florida and Arizona.
· Compass Bank is a sales oriented bank.
· Construction Lending contributes to a large percentage of the banks business.
· Compass Bank offers a money market account and zero balance checking writing system for larger deposits.
· Compass Bank requires a purpose / scope statement to be filed stating the true reason for needing a loan.
· Contractors and Developers are required having at least 20%-30% of liquid capital for a construction loan.
· Projects requiring loans of $100,000 or greater require the bank to bring in an appraiser and building inspector. The building inspector and appraiser monitor the construction project and review plans and specifications.
Lending Department uses a checklist of criteria before rewarding a loan yet the bottom line is still “gut” feeling about the owner and the proposed project.