Securities Backed Line of Credit (SBLOC)

Benefits

TradePMR Bank’s Securities-Backed Lending Program provides a Line of Credit (SBLOC) that is backed by securities. It provides access to the value of an investment portfolio, and at the same time, avoids any potential tax consequences of liquidating the assets. Clients can continue to enjoy the growth that their securities may have to offer. Once established, a Securities-Backed Line of Credit may be accessed at any time.

Securities-Backed Lending gives advisors a flexible option to help meet their client needs. With a SBLOC in place, asset liquidation of an investment portfolio does not have to be the solution to unexpected life events.

SBLOC vs. Margin Loan

In a traditional Margin Loan, the lender is the brokerage house holding the collateral. With Securities-Backed Line of Credit, a third-party bank, in this case TradePMR Bank, is the lender. These loans are floating-rate lines of credit that are collateralized by securities portfolios. Because the lender is a bank, credit and underwriting standards may be more rigorous than those of a brokerage house.

Credit Limits

Credit Limits are based upon the quantity and type of underlying collateral. The limit is determined by multiplying the collateral value by the advance rate associated with the security type.

Security Type	Advance Rate
Equity Securities/Funds	50%
Fixed Income Securities/Funds	80% (investment grade)
Treasury Securities	90%
Cash and Equivalents	100%

In the event that the value of the collateral falls significantly, TradePMR Bank may contact you to request that additional funds be placed into the collateral account. This request will be made when the line of credit balance reaches 65% of the value of mutual fund or equity collateral, and 90% and 95% of fixed income and treasury securities, respectively.

Collateral Account Requirements

The current custodian must honor The Bancorp Bank’s Tri-party Control Agreement and place a “hold” on the account. The following accounts may NOT be pledged as collateral against a Securities-Backed Line of Credit:

Individual Retirement Accounts
UGMA/UTMA Accounts
Qualified Plans
Endowment and Foundation Accounts
403(b) Accounts

Interest Rates

Interest on Securities-Backed Lines of Credit is tied to The Wall Street Journal Prime Rate and is determined by the outstanding loan balance. The rate tiers are as follows:

Loan Balance	Rate	Floor
$0.01 - $99,999.99	Prime* + 1.00%	5.5%
$100,000 - $249,999.99	Prime* + .25%	4.5%
$250,000 - $499,999.99	Prime*	4.5%
$500,000 - $1,000,000.00	Prime^* - 0.25%	4.5%
Above $1,000,000	Call For Details	Call For Details

*Prime shall be the rate as listed in The Wall Street Journal
There is no charge for the portion of a Line of Credit not in use by the client.

Obtaining a Securities-Backed Line of Credit

The following are the procedures for obtaining a SBLOC:

Client completes and signs TradePMR Bank/Bancorp Securities-Backed Line of Credit Account Application. The Application is available on the web at the TradePMR Bank website.
Advisor faxes a completed application to TradePMR. TradePMR forwards application along with appropriate securities portfolio information.
Applications from entities other than individuals (trusts, corporations, etc.) may require additional documentation. The bank may request copies of certain organizational documents, such as corporate charters/resolutions or trust documents.
Bancorp lending officer contacts advisor via phone within three business days to discuss proposed loan terms.
Upon receiving approval from advisor, Bancorp prepares and sends document package, via overnight mail, to either advisor or client (depending upon preference indicated on application).
Advisor/client receives document package within five business days from the date on which approval of terms was given. The package includes:
- Loan Documents
- Optional Wire Transfer Form
- Return Overnight Mail Envelope
Client signs documents in all indicated spaces. If an immediate wire disbursement is desired, wire transfer form is also completed and signed.
Loan packages returned to Bancorp using the enclosed pre-paid return overnight mail envelope.
If requested, the initial wire transfer is made to the account indicated within five business days of the date on which the documents were returned.
If requested, checks received by client within approximately fifteen business days from the date on which the documents were returned.

Note: Distributions may not be made from collateral accounts without prior bank authorization. (Advisory fee distributions are excluded from this requirement.)

Note: Automatic distributions and check writing privileges cannot be associated with collateral accounts. All outstanding automatic distributions will be discontinued and check writing privileges will cease when TradePMR Bank receives executed loan documents.

What benefits does securities-backed lending offer the advisor?

Securities-backed lending gives investment advisors additional flexibility in meeting client needs. Liquidity needs that, in the past, would have required asset liquidations can now be met by leveraging the value of the client’s securities while keeping them under management. With a line of credit in place, an unexpected life event need not lead to the disruption of a carefully constructed investment portfolio.

How might a borrower make use of a securities-backed line of credit?

The borrower may use the proceeds from an SBLOC for almost any purpose, including but not limited to: taxes, tuition, major purchases, refinancing of other debt, ongoing expenses, establishing a new business and so on. Note that funds from this program may not be used to purchase additional securities.

Even if they are not presently making full use of their line of credit, many borrowers find that having such a deep source of liquidity available at a moment’s notice provides greater flexibility and peace of mind.

What are the principal differences between a securities-backed line of credit and a margin loan?

The biggest distinction lies in the identity of the lender. For a traditional margin loan, the brokerage house holding the collateral lends the money. In securities-backed lending, however, a third-party bank is the lender. Because the lender does not hold the collateral directly, credit and underwriting standards are somewhat more rigorous than those imposed upon margin borrowers.

Additionally, the credit available from an SBLOC does not fluctuate with the value of the underlying portfolio, but rather remains at the level stated in the original loan agreement. Note, however, that the borrower’s ability to draw against the line may be effectively limited by maintenance requirements in the event of a significant collateral devaluation.

Because this line of credit is a formal bank loan, the lender has somewhat more underwriting flexibility than is typically offered by brokerages. This includes the ability to take into account unique circumstances when extending credit.

Who is the Lender?

The Bancorp Bank (NASDAQ:TBBK) serves as lender for this program.

What are the advantages of utilizing Bancorp over another third-party lender?

By using the TradePMR Bank securities-backed lending program, the advisor is spared the ordeal of locating a third-party lender who will accept collateral held at TradePMR. TradePMR has already done the work of negotiating loan terms and collateral requirements. And, in the event that the client desires an authorized distribution from a collateral account pledged to Bancorp, the normal distribution form is all that is required.

In addition, the advisor will not send its clients to third-party banks who will then be in direct competition for the assets of that client.

Should I recommend securities-backed lines of credit in lieu of a home equity lines for my clients?

That depends entirely upon the unique situations of each of your clients. For some, a home equity line will continue to be the most appropriate vehicle for borrowing due to its unique tax advantages. This program is not meant to replace or compete with home equity lines, but rather to stand along side them as another tool to help you retain assets. A securities-backed line may be appropriate when a client is not eligible for full home equity interest deductibility, is operating on a tight timeline, does not want to pay closing costs, or only has a very short-term need for borrowed funds. A complete assessment of each client’s circumstances is needed to determine which type of loan provides the best fit.

My client has a margin loan/securities-backed loan secured by assets at another custodian. Can Bancorp help me move the assets and the associated line of credit to TradePMR?

Yes. To begin this process, check the box stating, “Assets currently serve as collateral for a margin or securities-backed loan to be paid off (if checked a bank representative will contact advisor for details)” on page two of the Securities-Backed Line of Credit Account Application. Do note, however, that a period of time will be required to pay off the third-party loan, transfer the assets to TradePMR, and activate the client’s new line of credit.

Can I continue to use my Securities Account check writing privileges?

Any check writing associated with the Securities Account will be terminated when the account is pledged and the Securities-Backed Line of Credit becomes available. In certain instances check writing privileges may be maintained. The Securities-Backed Line of Credit offers check writing access. Contact the bank for information.

How much paperwork is involved?

The account application is a simple, two-page form. Because an SBLOC is a formal bank loan, however, the final loan documents may be longer than those typically associated with a margin account. The loan documentation packet will require the borrower’s signature in a number of clearly marked locations, some of which must be notarized. At his/her discretion, the advisor may choose to receive the loan documents from the bank and assist the client in executing the appropriate signatures.

For individual borrowers, the bank will not usually require additional documentation. For accounts being opened in the name of a corporation, trust, or other entity, be prepared to provide the bank with the copies of relevant organizational documents, such as a corporate charter or resolution or trust documents.

Who makes the loan approval decision? Can TradePMR influence the underwriting process?

Bancorp retains sole discretion to approve or deny loan applications and borrower requests. TradePMR cannot intercede on behalf of any loan application or accountholder.

Is there an account minimum?

While there is no minimum loan amount, at least $100,000 of collateral must be pledged.

When, in the application process, are restrictions placed upon the collateral account?

The collateral account is not formally pledged to Bancorp until Bancorp receives the signed loan documents. At that point, TradePMR will be notified that the account now secures the line of credit. Note that applying for an SBLOC, by itself, does not place any restrictions upon the proposed collateral account. Also note that transactions that occur after the initial account valuation and prior to the pledge of the securities account may reduce the amount of credit available to the borrower.

Is there a collateral account minimum?

Yes. The pledged account(s) must contain an asset balance of at least $100,000.

If more than one account is pledged to a single loan, are transfers between those accounts restricted?

No. Transfers between accounts pledged to the same loan are not restricted. Note, however, that these transfers may require additional time for processing.

Can a borrower request automatic distribution from a collateral account?

Not usually. Any previously established automatic distributions would ordinarily be discontinued when the account is pledged. Advisors seeking an exception to this policy may contact the bank directly.

Are there any restrictions on asset inflows to the pledged account?

No, however advisors should be aware that any assets placed in a collateral account will immediately become pledged against the line and may not be withdrawn without bank authorization. If these asset inflows materially increase the value of the account the borrower may want to submit a written request to increase the credit limit on the securities-backed line of credit.

Is trading permitted within the collateral account?

Yes, although advisors are strongly advised to consult with Bancorp prior to implementing any major changes in asset allocation. This will prevent restrictions from being placed unexpectedly upon the borrower’s ability to draw against the line.