The core of Siena’s business rests on our traditional balance sheet business. We originate, structure and finance senior secured commercial loans for small- and medium-sized companies. Our target loan size is $1 million to $20 million. These deals are typically high-growth companies, turnarounds, recaps, restructurings, storied credits, special opportunities and leveraged buyouts. Our servicing relationship with community banking partners allows us to consider financing a wide range of companies from those with challenging credit metrics to those that are higher quality and bankable. This wide credit range allows us to match credit quality and yield with either Siena’s balance sheet or any one of Siena’s community bank partners (e.g., syndicate partners).

It is no surprise that community and regional banks find Siena’s model welcoming, as it unlocks lending opportunities without incremental cost. Historically, the specialized credit experience, intensive monitoring and systems platform required for responsible asset-based lending has discouraged small banks from investing in the ABL asset class. As a result, much of the ABL talent has grown within larger banking institutions that contain these resources or within non-regulated independent ABL lenders. In both cases, the intent is originating loans for their own balance sheets, which requires full internal capability. Many small banks simply cannot rationalize the investment required to properly build an internal ABL capability due to resource limitations, insufficient scale and regulatory requirements.

Syndicate Partner Program

Siena’s servicing model offers bank syndicate partners a free option to cherry pick and acquire bankable ABL credits that meet their specific criteria. These loans, whether newly originated or acquired from Siena’s portfolio, are monitored and serviced by Siena at institutional and regulatory-compliant standards. In addition, Siena assists its bank syndicate partners in building origination processes and capabilities so they can market the ABL loan product in their own local market and leverage their branch network. In the past, these opportunities were often passed up by banks that did not have an internal servicing capability. When requested, Siena also assists its syndicate partners with structuring and underwriting and can participate in a transaction. Community banks can now responsibly gain exposure in the ABL asset class that, for many, was not possible in the past.

Siena’s innovative business model was engineered by Michael Carrazza, CEO of Solaia Capital Advisors and chairman of Siena, along with the founding executives of Siena. Carrazza also serves as chairman of Patriot National Bancorp, a nationally chartered bank he rescued from failure via a control recapitalization. As part of Patriot’s turnaround, Carrazza advocated the need to diversify revenue streams and reduce real estate asset concentrations, a tantamount problem faced by many small community banks. “The over-concentration in fixed-rate real estate assets prevalent across many small banks is troublesome and presents inadequate protection from interest rate risk, particularly at this part of the rate cycle,” said Carrazza.

ABL Asset Class Benefits

As an operating financier and equity sponsor, Carrazza quickly recognized the benefits of leveraging the ABL asset class as one of the improvement strategies for Patriot’s turnaround. The benefits of introducing ABL as a new bank product were obvious. A fixed-rate real estate portfolio in a declining rate environment was wreaking havoc on margins. This margin erosion is compounded by having high-rate legacy real estate assets pay off and then having to re-lend in the same asset class at today’s lower rate. Besides contributing to a deteriorating margin, locking into fixed-rate real estate loans at the bottom of a low-rate cycle presents a potential mismatch in duration and higher-risk profile. If rates were to rise, the net interest margin of those fixed-rate real estate assets would further shrink. An ABL product is one powerful tool to help mitigate these risks.

In Patriot’s case, Carrazza wanted to capture the variable rate, higher yields, commercial relationships and ancillary depository business that ABL could offer. The fact that ABL is senior secured against current assets with quicker and better recovery attributes than real estate assets provided support. Like most small banks, the conundrum was Patriot did not have the internal ABL sophistication and lacked the scale to enter the business on its own. Solaia Capital engineered a structure to build the ABL capability outside of Patriot so that it could service many small banks and deliver the highest level of institutional monitoring, service, compliance and reporting that community banks could never afford to replicate internally. The concept was logical, but required substantial development to assure that Siena’s servicing platform would meet the rigorous standards and regulatory requirements of its syndicate partners. Siena successfully achieved these results and is rapidly leading this new paradigm shift in the ABL market.

Growing Originations

Our network of syndicate partner banks across the country is growing, and a rising volume of originations flow both ways. Bankable credits that Siena originates are made available to its syndicate partners. If a syndicate partner bank originates a loan, that originating bank decides if it wants to keep some or all of the loan on its balance sheet. Siena works with the bank to place or acquire any additional loan exposure the bank doesn’t want. This is particularly valuable in the case of a non-bankable credit, where a bank could risk losing a new relationship altogether. Syndicate partners are also afforded the right to buy loan exposures in the future that may not fit their credit criteria upfront. Each syndicate partner bank retains all peripheral banking business and earns a portion of the fee income. Siena can convert “lightly” monitored credits pre-existing on a syndicate partner bank’s balance sheet to full monitoring.

The net effect to Siena’s syndicate partner banks is highly accretive. Community banks now have a new variable rate product that fits within its C&I category. This reduces risk and adds economic and franchise value. Additionally, any owner-occupied commercial real estate loan accompanied by a working capital ABL loan is classified as C&I, and the banks are generally happy keeping that exposure. There is negligible cost and significant upside for a bank to become a syndicate. For banks that really want to increase ABL exposure, Siena offers a private label branding option. In this case, the syndicate partner bank can market a new product line to offer to existing customers or to attract new commercial relationships. This opportunity generates incremental revenue through ABL loans as well as revenue from ancillary bank products, including cash management.

Developing this new solution for the community banks has not been without its challenges. It was an intensive and lengthy process to assure that Siena’s servicing platform was built to meet the evolving compliance standards and to have our syndicate partners evaluate and test this with regulators. Interestingly, there was no shortage of early adopters on the heels of one of the worst banking crises in history. The market demand and reaction has been truly impressive and we plan to add dedicated marketing professionals to exclusively oversee our growing number of syndicate partners.

Expanding ABL Team

Siena’s ABL group has more than 175 years of combined experience, with total transactions exceeding $10 billion in facilities. Most team members began their careers at major institutions (e.g., CIT, GE, Congress Financial/Wachovia and LaSalle Business Credit), each highly regarded for their market-leading expertise in ABL. Siena’s team is comprised of the core team of Burdale Capital Finance, re-launched as Siena Lending Group after the Bank of Ireland was forced to sell off global assets. Siena operates at the same institutional standards the team built its reputation on and is proud of the consistent, positive feedback received from due diligence inquiries.

Barry Kastner is the latest addition to the Siena team. Barry reached out to us, wanting to become a part of Siena after seeing our early success in the market. His experience and deep relationships are a perfect fit for Siena. Barry joined early in 2014 as executive vice president responsible for marketing in the Southeast; he has made a quick and positive impact in a very short time frame.

Future origination and marketing expansion across the U.S. will follow a similar pattern, hiring highly experienced talent in strategic geographies. This will support the growing servicing demand as a function of expanding our syndicate partner network. Our syndicate partners can take comfort knowing that there is a dedicated and highly experienced relationship manager that will help them achieve great success in the ABL market.

David Grende is CEO of Siena Lending Group.