Some banks choose to share a portion of the risk, and reward, of more complex loans. You can use PrecisionLender to price these loans as the originating bank, or the participating bank. If your bank has Participations enabled, you'll see a field for participations on the right side of the opportunity, below Payoff/Renewal. If your bank doesn't have it enabled, the Participations field won't appear for you. If you'd like this feature enabled, please reach out to your CSM or to Support at email@example.com.
Originating the Participation Loan
If you are originating a loan and wish to sell a piece of that loan to another bank, you will price the loan as if no participation was being considered. This will ensure that the entire transaction with your borrower is priced and its stand-alone return is calculated. Any details related to the participation will be captured in the "Participations" field on the Opportunity pricing screen.
Start by entering the full amount of loan you are originating in the "Amount" field. If you are charging an origination fee to the borrower, enter this entire amount in the "Fees" field. If any of the fee income is being passed to the participating bank(s), it can be added to the "Additional Expenses" field in the "Participations" popup (please see the Participation Expenses section in this article for more details).
In the example below, we have a $1,000,000 Commercial Real Estate loan with a .1% origination fee being charged to the borrower. We plan to participate out 30% of the deal to the “Bank Down the Street”.
Adding a Participation
Click the "Participations" field in the Opportunity pricing screen to open the participations popup.
Participation Field Entries
Name and Amount of Participation
Begin with the name of the participating bank and then enter the percentage or amount of the deal they will own in the “Participation” field.
If you are participating the deal out to multiple banks, click "Add New" to enter the details for the next participating bank. This will create a blank participation page where you can fill in the relevant details for this bank. Continue this process until you have added details for all of the banks participating in the deal. You can toggle between participation detail pages by using the "Participating Bank" dropdown to select the bank you would like to see. The number next to "Participations" at the top of the popup will display the number of participations that exist for this opportunity. You can remove additional banks from the participation by clicking "Remove" in the bottom left of the popup.
Participation Upfront Premiums
If you are charging an upfront premium to, or collecting an upfront fee from, the participating bank(s) for bringing them the deal, you would enter that premium either as a % of the participation amount in the field "% of amount" or as a dollar figure in the box below it. (Note: Both upfront and annual premiums flow through the P&L as Origination Fees included in the Interest Income).
Participation Annual Premiums
If you are charging an interest rate premium to, or collecting a fee from, the participating bank(s), you would enter the % in the "Interest Rate Premium" box or the dollar figure in the box below it. For example, if the rate charged to the borrower is 5.275%, but you are collecting a 1.0% rate premium from the participating bank(s), then you are only passing through 4.275% of the nominal rate to the participating bank(s). The 1.0% rate premium is entered in the "Interest Rate Premium" box. (Note: Both upfront annual premiums flow through the P&L as Origination Fees included in the Interest Income.)
If your payment type is Amortizing, your Annual Premium Received will be lower than if your payment type is Single Pay/Interest Only. This is because we are calculating the Annual Premium Received as an average over the life of the loan using the end balances for each year of the loan, and because amortizing loans pay down over time.
Finally, you can choose to add any additional expenses you may incur from originating and servicing the participation deal at the bottom of your “Participation” pop-up box. These expenses would be above and beyond your normal expenses found in the Origination and Servicing Channels above. These expense fields can also represent a fee income amount or % that you are passing to the participating bank(s) from your borrower.
Completed Participation Entry
After entering the participations details in the popup, the "Participations" field will display the the total amount being participated out and the number of participating banks. Additionally, the retained portion of the participation will display to the right of the "Amount" field.
Participating in a Loan
If you are participating in another bank's loan, you should enter it as you would if you were winning that loan. The "Amount" field would be the amount that you are purchasing from the other bank; for example, if you're purchasing in a $5 million loan, but are only buying $2 million, enter $2 million as the amount. Any up front fees you are paying to purchase the loan should be entered as origination expense; any ongoing fees should be entered as servicing expense.