TODAY BUSINESS STRATEGIES Total Money Management from the professionals at First National Bank SHIFTING DYNAMICS IN THIS ISSUE:
Vincent J. Delie, Jr. Chairman, President and CEO F.N.B. Corporation First National Bank 02 During the past several years, we all have operated in an almost constant state of change. Whether adapting to external forces, keeping pace with emerging risks or preparing for the next phase of financial life, business owners and leaders are facing new dynamics that highlight the importance of proactive planning and consultative partnerships. In this edition of Business Strategies Today, our experts offer insight to navigate today’s complex environment. We discuss financial products and services designed to ensure clients have adequate liquidity to survive and continue making progress in an economic downturn — and how having a close relationship with your bank can better position your business for success, especially when conditions become challenging. Our insurance experts also address the importance of cyber liability coverage and necessary considerations to protect your business from increasingly prevalent fraud attempts. We round out the issue with a look at business succession planning, financial planning and the value of preparation as a driver of confidence and stability. As we have proven in a range of economic cycles, FNB is well prepared to manage through uncertainty. Our deep product set is backed by a disciplined approach, experienced team and focus on the relationship that enables us to support our clients to both navigate challenging scenarios and capitalize on opportunities when conditions are favorable. Together, we can help you stay the course to the successful future you have worked hard to make possible. We invite you to get to know FNB and look forward to the opportunity to discuss the financial goals you have set for your business and your family. THE FIRST NATIONAL BANK DIFFERENCE First National Bank, the largest subsidiary of F.N.B. Corporation (NYSE: FNB), is a growing financial services organization with a long-standing tradition of helping our customers and communities thrive. Throughout more than 150 years of service, we have remained dedicated to providing total money management solutions for our consumer, small business and commercial clients. We have a core business concentration on middle and upper middle market companies and serve their needs as a value-added partner. MORE INSIGHT FROM FNB You can always look to FNB for expertise on the topics and trends that have the greatest impact on you and your business. In Business Strategies Today, experts from across our Company have covered a wide range of subjects, such as making the most of the economic environment, staying the course to innovation and planning for the future of your business. Just a few of the topics we’ve covered recently include: check International Expansion check Interest Rate Management check Payments Solutions check Wealth Management check Succession Planning check Cybersecurity check M&A To learn more about topics that may benefit your business, call us at 1-866-362-4603 or visit fnb-online.com/business
03 04 SOLUTIONS TO WEATHER THE STORM SUCCESSION PLANNING: TAKE ACTION TO PROTECT YOUR BUSINESS’ LEGACY 08 10 06 ASSESSING CYBER LIABILITY INSURANCE OPTIONS FINANCIAL PLANNING: CREATE CONFIDENCE AMID UNCERTAINTY FULL-SERVICE SOLUTIONS COMMERCIAL BANKING* • Corporate & Business Banking • Investment Real Estate • Builder Financing • Asset-Based Lending • Lease Financing • Capital Markets • Mezzanine Financing • Treasury Management • International Banking • SBA Lending • Government Banking CONSUMER BANKING* • Deposit Products • Mobile & Online Banking • Mortgage Banking • Consumer & Small Business Lending * Bank deposit products and services provided by First National Bank of Pennsylvania. Member FDIC. Equal Housing Lender. INSURANCE • Property & Casualty • Employee Benefits • Personal • Title WEALTHMANAGEMENT • Trust & Fiduciary • Retirement Services • Investment Advisory • Brokerage • Private Banking Not FDIC/NCUSIF Insured Not Guaranteed by the First National Bank of Pennsylvania or its affiliates May Lose Value Not Insured by Any Federal Government Agency Not a BankDeposit First National Bank of Pennsylvania does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
04 FNB-ONLINE.COM Global events and a turbulent economy have clouded the business landscape. Ongoing supply chain challenges, record inflation, rising interest rates and increased transportation and labor costs mean businesses could be facing significant impacts to their cash flow and working capital cycles. A consultative bank that understands your operations can structure solutions to weather the storm. SOLUT I ONS T O W E A T H E R T H E S T O R M FINANCING SOLUTIONS Many commercial loans are closely tied to borrower performance. However, companies have options to access capital and shore up liquidity, even if earnings take a hit in a volatile environment. Asset-Based Lending (ABL) provides a flexible solution for businesses with borrowing needs beyond what they would qualify for in a cash flow deal. Instead of focusing solely on metrics such as EBITDA, or earnings before interest, taxes, depreciation and amortization, ABL looks more closely at a company’s assets, including receivables, inventory and fixed assets, to determine howmuch it can borrow.
05 BUSINESS STRATEGIES TODAY • FALL 2022 In the current environment, many businesses stocked up on inventory to mitigate supply chain delays and now have cash tied up with larger initial investments and longer lead times for sales. ABL enables that extra inventory to work in their favor to increase borrowing capacity and fund ongoing working capital needs or growth. An asset-based lender often can offer favorable advance rates, with financing based on up to 85 or 90 percent of a borrower’s receivables and up to 60 percent of its inventory. Additionally, ABL facilities generally offer competitive pricing and have less stringent covenants than traditional commercial loans, so borrowers enjoy enhanced liquidity and flexibility to absorb ups and downs in their operations. Mezzanine Finance is another option to increase borrowing in a downturn. A blend of junior debt and equity financing, mezzanine finance typically is used for event-driven capital needs, such as acquisitions or buyouts — but it also can bridge the gap when a business needs more financing than it could expect with a traditional senior loan. Because mezzanine loans are interest-only and feature lower monthly payments than traditional payments based on principal amortization plus interest, they can be effective for a business that needs to preserve cash flow, even though they are a more expensive form of debt overall. Both ABL and mezzanine structures can be converted to traditional cash flow financing when circumstances improve, maximizing benefits over time. Equipment Finance or leasing also can be viable solutions for companies that need to purchase equipment while preserving their cash balances. Leases offer up to 100 percent financing, fixed rates and customized terms, ensuring capital is available for other issues that could arise. RATE MANAGEMENT Interest rates spiked in the first half of the year and, with tightening economic conditions, it is unclear where they will go moving forward. Hedging strategies can lock in rates and better manage risk. The forward starting swap is especially effective in a shifting rate environment. In this solution, a borrower sets a future date to fix their interest rate while employing a variable rate in the interim. When the fixed rate kicks in, the floating rate likely will have stepped up to meet it, enabling the business to benefit from current lower rates and protect itself from future uncertainty. FNB’s EZPay is an integrated solution that enables clients to securely upload a single file containing all vendor payments, including check, credit card and ACH. Performing as an extension of your accounts payable department, EZPay automates labor-intensive check printing and mailing processes. This creates needed efficiency and frees employees to work on more critical projects, especially when hiring challenges and increasing wages are top of mind. When costs are going up on all sides, companies must find ways to do more with less. FNB offers comprehensive Treasury Management solutions to streamline collections, payments and other cash management processes. EFFICIENCY DRIVERS Businesses also are facing volatility in the foreign exchange (FX) market. Constant fluctuations in FX rates combined with a strong U.S. dollar have created challenges and opportunities. Currency hedging can help a business address scenarios, depending on whether it is buying or selling in a cross-border transaction. Now is a good time to review your international currency flows with FNB’s international banking team, as they have the expertise to help you manage currency risk during these uncertain times. Explore FX hedging techniques at fnb-online.com/business/knowledge-center. Select “Do Business Internationally.” In challenging times, your business needs more than a lender — you need a partner. The bankers at FNB have the experience to design solutions to keep your business on the right track. Call FNB at 866-362-4603 to learnmore about howwe can serve your business. Learnmore at fnb-online.com/business by selecting “TreasuryManagement.”
I N S U R A N C E O P T I O N S A S S E S S I N G 06 FNB-ONLINE.COM Cyberattacks are evolving in scale and sophistication, even as businesses increase investments to protect their systems and information. To mitigate growing risk, companies can benefit from the protection that a Cyber Liability Insurance (CLI) policy offers against expenses and liability when vital or confidential information is exposed or stolen. Given the sensitive and valuable nature of a company’s information, it is not a question of if a business should carry a CLI policy, but of what the right amount of coverage is to fit their needs. CYBER LIABILITY
07 BUSINESS STRATEGIES TODAY • FALL 2022 BENEFITS OF CLI With a CLI policy, a business can be reimbursed for a wide range of costs following a breach, including liability protection, payments to retrieve stolen information in a ransomware attack, investigative expenses, customer notification processes and credit monitoring, loss of business and a host of other possibilities. The rocketing demand for CLI also has created a growing data set. By working with a trusted insurance advisor, businesses can benefit from in-depth analysis about the coverage held by peer companies, ensuring that their policy aligns with industry benchmarks. CONSIDERATIONS To determine the level of insurance a business needs or qualifies for, providers will conduct due diligence to assess risk prior to crafting a policy. Often, these discussions may start with a focus on multi-factor authentication (MFA). By requiring a combination of steps to access a network that could include a password, PIN, code sent to a user’s device, token or biometric login, MFA can thwart the overwhelming majority of cyberattacks on user accounts. Without MFA protocols in place, a business of any 1. According to the Chubb Cyber Index® Call 800-252-4850 to speak with an FNIA representative about protecting your business. Over one-third of all cyber incident claims reported in 2021were by companies with less than $25million in annual revenue.1 Since 2009, the average paid incident response cost is over $419,000 per incident, with over 70 percent of costs related to investigations and customer notifications.1 size may find it very difficult or impossible to carry a CLI policy due to the potential for exposure. During due diligence, a business also can expect to have reviewed, among other areas, its: caret-right Transaction controls. What does the business require for money transfers? Who has access to money, and what levels of authentication are required before money is transferred? caret-right Network security controls and internal cybersecurity practices. Insurers need to understand the company’s network structure and management strategies, whether handled internally or by a third-party vendor. Additionally, certain protocols such as MFA are nearly universally required for a business to be able to carry CLI. caret-right Previous cyber incidents. Has a company encountered previous cyberattacks or issues, and to what extent? Does a company have past cyber incident claims? caret-right Vendor management and third-party network access. Any person or external business entity that has access to a network can pose a cyberthreat, either directly or indirectly. Diligent vendor management and network access procedures are critical factors in mitigating risk. Providers analyze these factors to quantify risk and determine the amount and type of coverage that a business may qualify for with a CLI policy. This process also helps businesses review cybersecurity protocols, examine potential threats to strengthen their overall security strategy and understand their total risk management picture. The advisors at First National Insurance Agency (FNIA) possess the depth of industry knowledge to build a CLI plan that fits your needs. Effective risk management requires a comprehensive strategy. In addition to the security FNB deploys to protect customer data, we offer multiple solutions to ensure that your business has 360-degree coverage, including for instances of payment fraud, phishing or social engineering. Positive Pay: FNB’s Positive Pay is a treasury management product for check-based transactions that is designed to identify, flag and report unauthorized transactions for review via online or mobile banking. ACHDebit Filter: FNB’s ACH Debit Filter allows ACH debits to be filtered, reviewed, approved or returned, ensuring that only approved transactions post to your accounts. With real-time reporting and control of filtering parameters, businesses gain efficiencies and valuable insights for their ACH processing activity. MyRiskManager™: FNIA’s online risk management program supports all aspects of risk prevention. Among its capabilities are certificate of insurance tracking, incident reporting, safety data sheet management, personnel management and other efforts to reduce risk. For example, MyRiskManager can help a business secure more comprehensive coverage on its CLI policy with penetration testing to determine its vulnerability against a cyberattack. TOOLS TO MANAGE RISK To learnmore or schedule an appointment, visit fnb-online.com/business.
08 TAKE ACTION LEGACY T O P R O T E C T YO U R B U S I N E S S ’ Over half of the country’s privately held businesses with employees —more than 2.9million firms with over 32million employees, according to Census Bureau data — are owned by individuals who are 55 years of age or older. 50% By 2030, all Baby Boomers will be 65 or older. Many are business owners who are facing retirement in the midst of a global health crisis and economic uncertainty. It is natural to think about life after your business but rushing a decision could have major consequences. Your bank can assist with establishing a succession plan to safeguard against the unexpected and ensure goals are met. Ideal succession planning starts as soon as a business begins gaining traction. FNB recommends acting at least two years out from planned transitions with a focus on four foundational steps. S U C C E S S I O N P L A N N I N G :
09 BUSINESS STRATEGIES TODAY • FALL 2022 Third-party sale: Your advisors and banker can assist in structuring a third-party sale agreement that maximizes results. While selling a company on the open market may bring the highest price, consider how you will feel seeing your business in new hands. Employee Stock Ownership Plan (ESOP): Employees “buy” the company through participation in a qualified plan. ESOPs have high emotional value and reward a loyal team. ESOPs also have unique tax incentives but may result in a lower price than an outright sale, so it is essential to build a financial plan that capitalizes on tax and other attendant benefits. Internal transfer: Sales to family or management often cause the least disruption for customers and can be attractive in a downturn when buyer access to capital is restricted. You may need to hold a note in the capital structure if your management team cannot fund the purchase in full. If your family is involved, determine if you can afford to gift shares to them as part of the transition. Estate planning transfers: Business assets can be gifted or sold to a trust to minimize tax liability. Your exit planwill be as unique as your business. Contact your advisor to discuss the solution that is best for you. COMMON EXIT STRATEGIES ESTABLISH A BASELINE Succession planning is not one-size-fits-all. Determine if you have agreements in place that restrict your exit options (such as a buy-sell agreement), ensure all legal documents are up to date and assess performance. Consider challenges youmay face in the next fewyears, such as necessary development to prepare succession candidates to lead in your absence, while you have sufficient time to address themand potentially improve your outlook. KNOW YOUR BUSINESS’ VALUE A third-party valuation of your business provides a clear picture of its market value. Conduct this step as early as possible to identify opportunities to improve your valuation. For example, if you learn your business would be more attractive to a buyer if you diversify your customer base or invest in a new revenue stream, you need several years to implement changes, realize returns and record sufficient financials to demonstrate the value. CONFIRM YOUR OBJECTIVES With a valuation in hand, your advisors can guide the complex process to determine realistic post-business needs. Beyond what you need to be comfortable in retirement financially, define goals for the wealth you leave your family or charity. Think through what you want for your business when you no longer are involved. EVALUATE YOUR EXIT OPTIONS Financial planning is the cornerstone of the succession planning process. Decisions about how to manage your estate will inform the best way to structure a sale to achieve your goals for yourself, your family and your legacy. With the estate tax exemption decreasing significantly at the end of 2025, it is important to develop a plan now. Readmore about Financial Planning on page 10. 1 4 3 2
DEVELOPING YOUR PLAN Datawill be used to drive the strategy behind your plan, including items such as account statements, tax returns, legal documents and your long-termgoals and short-termobjectives. In preparing to develop a plan, consider: caret-right Career Duration. How long you anticipateworking ormaintaining a steady streamof income to build savings. caret-right Longevity. Advances in technology, lifestyles, healthcare andmedicinemean you could live longer in retirement. caret-right Your Total Financial Picture. A comprehensive plan requires a full view of your income, assets, liabilities, expenses and spending patterns. caret-right Inflation. Determine your costs that are subject to inflationary pressures. Inflation can be one of the biggest variables that impacts long-term financial stability by depleting savings to cover short-term expenses. Despite its importance, the focus on financial planning tends to run countercyclical to economic conditions. Strong markets may create a sense of complacency, whereas downturns may invite engagement. Much like businesses synergize processes to optimize their operations, personal financial planning allows individuals to synthesize the work of their different advisors, such as certified public accountants (CPAs), attorneys and investment advisors, to develop a comprehensive strategy that provides stability and confidence in their financial future. Given the economic environment, financial planning is front-of-mind. Understanding the elements that contribute to a successful strategy are the first steps in efficiently managing this process. 10 FNB-ONLINE.COM F I N A N C I A L P L A N N I N G : CREATE CONFIDENCE A M I D U N C E R T A I N T Y
caret-right Your RiskAppetite. Risk is inherent with all investments. Assessing your comfort level and the amount of volatility you arewilling to absorb in various economic cycles will guide your investment decisions. An aggressive approachwill assume higher rates of return but with higher risk, and vice versa. PROSPECTIVE MODELING STRENGTHENS CONFIDENCE With a clear understanding of your situation and objectives, plan development begins. Prospective modeling should be central to the process and conducted against all variations of economic circumstances. In addition to formulating the right plan options to achieve your goals, the modeling process instills confidence by allowing you to see on paper what your finances will look like in a worst-case scenario to avoid surprises in unfavorable market conditions. 11 Contact us at 888-824-5833 to discuss your options. Seek a fiduciary. Registered investment advisory firms, like FNB, are fiduciaries and are required by law to act in the best interest of their clients. In this manner, FNB’s advisors also can provide guidance on various topics that contribute to your overall financial well-being. Credentials matter. At minimum, your advisor or advisory team should have a CERTIFIED FINANCIAL PLANNER™ (CFP®) designation. Some organizations may also have Chartered Financial Analysts, Certified Public Accountants and attorneys as part of an advisory team. Breadth and depth of expertise. You want an advisory group that has experience developing plans for individuals in similar situations to ensure your goals are being met. For entrepreneurs, seek out an advisor with experience planning for businesses of your size. The right connection. Examining your long-term plans can be an emotional process. Be open to interviewing several financial planners to find someone with whom you are comfortable discussing sensitive topics. F.N.B. WealthManagement delivers a relationship-driven approach and a team of advisors who work with you to understand your goals and design the right strategies to manage, grow and protect your wealth. BUILDING RESILIENCE There is no “set it and forget it” in financial planning. Your plan requires ongoing reviewwith your trusted advisor. For example, tactical adjustments can bemade to your investment portfoliowithout changing your overall allocation or risk appetite. Additionally, changes in the tax environment, significant life events or other factorsmay shift your strategic objectives. There also may be opportunities to talk with an advisor about adding alternative investments to reduce risk in the overall portfolio and drive incremental return, even in times of economic downturn. The financial planning process can improve your understanding of market dynamics and confidence in your financial stability. FNB Relationship Managers are dedicated to providing advice and guidance to build the right plan for you. Visit fnb-online.com to learnmore and schedule an appointment. FINDING THE RIGHT FINANCIAL PLANNER BUSINESS STRATEGIES TODAY • FALL 2022
We’re committed to helping the business community do more. It starts with more advanced banking solutions to help launch new products, expand operations and enter newmarkets. We also offer more options for financing, from loans and lines of credit to asset-based, commercial real estate and SBA loans, as well as equipment financing and leasing. We offer more treasury management solutions to give you greater control over receivables and payments. We even offer more sophisticated capital markets solutions, including interest rate risk management, foreign exchange, trade finance, syndications and global trade solutions. Plus, we always deliver more personal assistance and more local expertise, making it easier for more businesses to achieve more of their goals. To learn—and get —more, visit fnb-online.com. BANK FOR YOUR BUCK. NMLS #766529 President’s “E” Award for Export Service Data as of September 1, 2022 FNB10-259 340+ BRANCHES TOP 50 80+Excellence and Best Brand Awards SINCE 2011 $42 billion NEARLY $34 Billion in assets in DEPOSITS 900+ ATMS 4000+ EMPLOYEES Largest U.S. Bank Holding Companies Coalition Greenwich COV I D STANDOUT