are your bank relationships on...

The exclusive property of Phoenix-Hecht®, this material is a privileged communication, available to and for the guidance of your executives only, and is not to be copied from, published, or divulged to others.

© 2014 Phoenix-Hecht All Rights Reserved Confidential

Are Your Bank Relationships on Autopilot?

May 28, 2014

James G. Brunnquell, CTP Senior Vice President

919.314.2822

http://nyce.tmany.org/2014

What Type of Customer Are You?

2

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Credit only

Treasury management only

Other credit and treasury management

Lead credit and treasury management

Large Corporate Middle Market

Source: Treasury Management Monitor™

How Do You View Each Bank Relationship?

3

15%

34%

51%

17%

39%

45%

0%

10%

20%

30%

40%

50%

60%

Marginal Stable Prime

Middle Market Large Corporate


Corporate vs. Bank Evaluation of the Relationship

Corporate Treasury Manager Bank Relationship Manager

Interest and fees on loans/revolvers/lines

Treasury management: fixed and variable costs

Earnings credit

Total account analysis charge

Total deposit float

Fees for non-TM services: FX, derivatives, foreign trade services, custody, trade finance

Differing Points of View: Relationship Cost vs. Profitability

Net interest margin plus loan fees

Total account analysis charges

Negative float on balances

Fees for non-TM services: FX, derivatives, foreign trade services, custody, trade finance

Total cost of relationship Total compensation per bank

Total return of relationship "Does the relationship RAROC?"

4

Got Credit?

Credit Satisfaction (Percent Rating 4 or 5) Middle Market Large Corporate

Bank meets credit needs 76.4% 82.5%

Bank has reasonable loan covenants 73.0% 80.6%

Last credit renewal negotiations 72.9% 80.2%

5


A local or regionalbank

One of the largenational banks

A non-bank provider

If you were seeking new credit, would you be more likely to approach: Percent who responded “yes”

Credit Plans in 2014 Percent rated 4 or 5 (Scale 1 to 5 with 5 = likely) Middle Market Large Corporate

Expand number of banks used for credit 7.8% 9.7%

Increase your bank credit capacity 16.8% 15.4%

Renegotiate credit interest rate 19.9% 18.0%

Renegotiate credit terms 20.2% 20.1%

Replace a current credit bank 8.0% 9.9%


How Does Credit Impact Your Relationships?

6


Percentage Who Agree 2013 2014 2013 2014

Company buys new services only from existing banks 79.7% 78.1% 72.6% 72.3%

Have any credit banks reduced or withdrawn credit commitments in the last year?

7.8% 6.8% 15.7% 10.8%

Have any of your credit banks denied your request for additional credit in the last year?

6.8% 6.5% 7.1% 5.0%

If you accepted a credit package from a new bank, would you expect to move treasury management business to that bank?

60.8% 63.5% 48.9% 42.9%

Have you moved or are planning to move treasury management services as a result of a credit issue?

12.1% 11.4% 23.1% 15.1%


Valuing the Relationship Importance of Customer Service

Percent rated 4 or 5 (5 = highest satisfaction) Middle Market Large Corporate

Dedicated client services representative 83.4% 79.4%

Speed of initial response 76.8% 75.2%

Resolving issues on first attempt 71.6% 67.1%

Follow-up communications 71.4% 69.0%

Familiarity with my account 76.6% 76.7%

Technical Support

Web reporting and transactions 74.3% 70.7%

ACH services 76.8% 73.5%

Purchasing cards 70.3% 65.3%

7 Source: Treasury Management Monitor™

Valuing the Relationship Measurements of the Essentials

8


Scale 1 to 5 with 5 = highest quality/satisfaction Low High Low High

Overall customer service 3.89 4.45 3.71 4.34

Relationship manager overall effectiveness 3.66 4.33 3.69 4.23

Bank meets credit needs 3.77 4.50 3.84 4.49

Last credit renewal negotiations 3.78 4.46 3.84 4.44


Feeding the Relationship Frequency of Bank Visits Per Year

Middle Market Calling Average

Customer Preferred Average Diff

2013 3.62 4.10 0.48

2014 3.12 3.68 0.56

Large Corporate Calling Average

Customer Preferred Average Diff

2013 3.37 3.90 0.53

2014 3.51 3.96 0.45


Factors that Demonstrate Your Bank’s Commitment to the Relationship

Middle Market Scale 1 to 5 with 5 = very important 2013 2014 Diff

Problem resolution response 4.52 4.58 0.06*

Credit availability 4.12 4.29 0.17*

Proactive in introducing new services 3.68 3.64 (0.04)

Calling officer stability 3.90 4.00 0.10*

Length of relationship 3.76 3.85 0.09*

Frequency of calling officer visits 3.09 3.18 0.09*

Large Corporate Scale 1 to 5 with 5 = very important 2013 2014 Diff

Problem resolution response 4.59 4.60 0.01

Credit availability 4.10 4.18 0.08

Proactive in introducing new services 3.94 3.96 0.02

Calling officer stability 3.87 3.94 0.07

Length of relationship 3.73 3.83 0.10*

Frequency of calling officer visits 3.19 3.33 0.14*

10 *Statistically significant Source: Treasury Management Monitor™

What Companies Are Saying Percent of Payment Transactions Made by Corporations

Check

64.6%

ACH 20.4%

Wire transfer 8.1%

Credit/debit card 6.6%

Other 0.3%

2013


2013 2014 2013 2014

Check 66.1% 67.3% 50.6% 48.9%

ACH 19.0% 18.3% 33.7% 32.7%

Wire transfer 8.0% 7.8% 9.5% 11.3%

Credit/debit card 6.7% 6.2% 5.8% 6.5%

Other 0.2% 0.4% 0.4% 0.6%

Check 65.5%

ACH 19.6%

Wire transfer 8.1%

Credit/debit card 6.2%

Other 0.6%

2014



Use P-Cards (commercial card) 34.8% 49.2%

Predicted percentage of vendor payments paid with card next 3 years

None 26.8% 14.2%

1% - 10% 46.0% 49.4%

11% - 25% 17.7% 22.4%

26% - 50% 7.1% 12.4%

Over 51% 2.1% 1.7%

Annual spend on card program

Under $1 million 66.5% 19.5%

$1 million to $10 million 28.6% 32.9%

$10 million to $50 million 3.9% 34.4%

Over $50 million 1.0% 13.2%

Receive a rebate for card transactions 61.0% 89.0%

Size of card rebate as a percentage of annual spend

Less than or equal 0.50% 19.9% 7.3%

0.51% - 0.75% 4.7% 5.3%

0.76% - 1.00% 40.6% 32.0%

1.01% - 1.50% 15.2% 27.3%

Over 1.50% 19.6% 28.1%

Accepts transactions for invoices greater than $10,000 33.6% 36.6%


The Evolution of Card

Corporate Treasury Plans and Intentions for 2014

Percent rated 4 or 5 (Scale 1 to 5 with 5 = likely) Middle Market Large Corporate

Reallocate treasury management business at existing treasury management banks

6.3% 13.8%

Eliminate ACH and check generation by outsourcing this part of the AP function 4.0% 6.0%

Increase the amount of electronic payments by at least 5% 27.7% 40.2%

Implement an electronic invoice management and approval system 11.8% 15.6%

Implement consolidated data transmission for lockbox, wire, and ACH payments 8.2% 11.4%

Implement a purchasing card program 21.0% 34.6%

Implement mobile banking for treasury management services 12.2% 19.1%

Add or change a controlled disbursement bank 7.9% 11.9%

Add positive pay service to disbursement accounts 16.5% 16.5%

Add or change an ACH bank 9.3% 11.5%

Add or change a lockbox bank 5.5% 17.0%

Add or change a bank to provide international services 6.4% 17.3%

Add or change a remote deposit service 10.3% 18.9%

Add or change a bank to process credit card receipts 11.9% 17.4% 13


To RFP or Benchmark?

Reasons To Do an RFP

Change lead banks/refinance existing debt/add credit capacity

Reduce cost of non-credit services: treasury, FX, derivatives, foreign trade services/finance, investment of cash

Ensure the latest advances in new technology in treasury products

A recent merger or acquisition and the need to integrate with existing banking relationships

Request of senior management

Issues with service

A bank merger

Other?

Factors To Consider

Time and FTE resources to prepare and issue the RFP

Time and FTE to answer potential provider questions about the RFP

Time and resources to evaluate and rank all submitted responses

Follow-up meetings with providers

Selection process

Bank tours/meetings

Time and resources to implement a new treasury management system with a new provider — nine months?

14

Benchmarking Quality

The Search for High Quality Providers

15 Source: 2014 Quality Index™


2013

2013

2013 2014

2014

2014

3.00

3.20

3.40

3.60

3.80

4.00

4.20

4.40

Meets Credit Needs Customer Service TM Relationship

Manager Effectiveness

2013

2013

2013

2014

2014

2014

3.00

3.20

3.40

3.60

3.80

4.00

4.20

4.40

Meets Credit Needs Customer Service TM Relationship

Manager Effectiveness

Scale 1 to 5 with 5 = highest quality Middle Market Large Corporate

Product Processing Low High Low High

Web-Based timeliness of reporting 4.25 4.57 3.91 4.57

Timeliness of incoming wire notification 4.25 4.52 3.76 4.53

Wholesale lockbox accuracy of processing and reporting 4.00 4.63 4.07 4.49

Timeliness of notification for disbursements 4.26 4.77 4.37 4.53

Speed of ACH error correction 3.95 4.52 3.70 4.40

Accuracy of processing and reporting depository services 4.26 4.64 4.18 4.42

Positive pay timeliness of suspect notification 4.42 4.75 4.25 4.55

Customer Service

Timeliness of processing account maintenance requests 3.75 4.46 3.55 4.26

Customer service 3.89 4.45 3.71 4.34

Worth of calling program 3.56 4.26 3.49 4.16

Treasury Management Relationship Manager

Anticipating your needs for new/modified services 3.54 4.07 3.44 3.94

Responding quickly to problems 3.74 4.41 3.72 4.27

Prompt call follow-up 3.69 4.43 3.76 4.24

Accessible when needed 3.89 4.39 3.72 4.27

Overall effectiveness 3.66 4.33 3.69 4.23

Benchmarking Quality Assess What Is Important To You

Source: 2014 Quality Index™ 16

Increase 19%

No Change

53% Decrease

28%

Benchmarking the Price of the Relationship


Percentage Who Agree 2013 2014 Diff 2013 2014 Diff

Company requests competitive bids for new treasury management services

40.0% 42.2% 2.2%* 61.6% 65.4% 3.8%*

Bank has won treasury management business principally because of low prices

24.2% 25.3% 1.1% 28.0% 29.8% 1.8%

Company has changed banks primarily because of price increases

13.6% 15.9% 2.3%* 13.6% 16.7% 3.1%*

* Significant change 17

83% are Transactional

Service Descriptions

2013 Blue Book of Bank Prices® - Change in Median Price Paid 1.0% Change in CPI +1.7% in 2012

• Analysis Statement Compatibility

• Low number of AFP certified banks

• Bundled Charges


Median Price Paid $0.11

Median Price Paid $0.10

Volume Drives Service Item Price

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

250 500 1,000 2,000 3,000 5,000 10,000 15,000 30,000

Controlled Disbursement Checks Paid Expected Price By Volume

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

20 100 300 750 1,500 5,000 10,000 20,000 60,000

ACH Item Originated Expected Price By Volume

Source: 2013-2014 The Blue Book of Bank Prices®

18

A Different View Sample Relationship Price Benchmark

Source: Blue Book Compensation Review™

19

How to Use Benchmark Data To See if Your Prices Are Reasonable

Service Description

Monthly Maintenance $xx.xx is 27th Percentile for my volume

Lockbox Image… $.xx is 85th Percentile for my volume

Opportunity?

1. Review your AA statement and look for items that have benchmark data.

2. Identify where your prices are relative to the market for your volumes.

3. Are your prices reasonable?

Sources of Benchmark Price Data

• AFP/Informa

• Consultant Databases

• Phoenix-Hecht

20

Steps to Monitor and Control the Cost of Services

Annual Review of Accounts and Services with Your Banks (division, subsidiary, or company)

Identify accounts and services no longer needed. All companies change over time.

Identify new services to save you time, money, and FTE.

With multiple banks, do you have the optimal treasury management system?

Review the Cause of All Transactions Review your receivable and payable processing. Work with your banker on ways to re-engineer and significantly

impact your cost.

Fraud is a cost to treasury. Use all the anti-fraud tools available from your bank(s).

Monitor Account Analysis Fees

Annually benchmark the prices of your treasury management services.

Use 822’s for domestic and BSB’s for international (Bank Service Billing—ISO 20022 standard, known as camt.086).

Use bank relationship management software to identify contracted price variances, possible inactive accounts, closed accounts, redundant services, volume reasonability, and charges against discontinued services.

Calculate Hidden Costs

Value float at your long term cost of capital i.e. 6%-7%.

Lockbox-mail and funds availability. Have your bank perform a lockbox optimization model. It is easier than you think. You may need an additional lockbox or to change lockbox locations.

What is your funds availability on remote deposit capture and image cash letters?

21

Periodic Testing Reasons for Meeting with a Non-Provider Bank

Percent rated 4 or 5 (Scale 1 to 5 with 5 = high) Middle Market Large Corporate

Willingness to lend requested amount 93.1% 92.1%

Competitive interest rate 95.2% 94.6%

Structure and repayment terms 88.5% 90.2%

Reasonableness of loan covenants 89.5% 92.9%

Relationship manager experience & knowledge 82.0% 81.5%

Treasury management product offerings 65.6% 53.8%

Access to senior bank management 65.6% 61.5%

22


Percent who responded "yes" 2013 2014 2013 2014

In the last year, did you have any face-to-face meetings with banks with whom you don't do business?

58.5% 57.9% 64.3% 67.2%

Would you ever seriously consider a proposal from a non-provider bank that does not also involve credit?

32.9% 33.9% 43.3% 40.3%


Periodic Testing Sources of Information

Scale 1 to 5 with 5 = very important Middle Market Large Corporate

In-person bank calls 60.4% 68.2%

Bank website 53.5% 43.1%

Trade publications 26.7% 45.2%

Trade meetings 19.9% 43.4%

Web-based seminars 36.4% 49.2%

56.5%

43.5%

Middle Market

Customers

Prospects

74.2%

25.8%

Large Corporate

23

Importance of Information Sources for Treasury Management

Non-Provider Bank Meeting Frequency (per year) Middle Market Large Corporate

Top Five Bank Average 1.83 1.90

Other Bank Average 1.83 1.86

All Bank Average 1.83 1.87


Suggested Next Steps

Quality concerns?

• Use bank scorecards as a relationship management tool to provide critical feedback and communication. Use a scorecard with each provider. See the www.afponline.org for the AFP Bank Scorecard.

• How do other corporates see your bank? Use third party quality benchmarking data to compare the quality of credit, product processing, features and capabilities of products, customer service, and relationship managers from various banks.

Although overall bank fees are likely to track the CPI, annually benchmark the prices of your treasury management services.

Volume drives service code pricing. Consider consolidating relationships to maximize your significance to your bank(s).

Monitor your account analysis charges vs. agreed upon prices with bank relationship software and 822’s and BSB’s.

24

http://www.afponline.org/

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