Diversify your Loan Portfolio with Business Lending. Don Arkell Senior Consultant

Transcription

1 Diversify your Loan Portfolio with Business Lending Don Arkell Senior Consultant

2 WHO IS THIS GUY?

3 Lending Landscape

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5 INVESTORS BORROWERS RISK AVERSE RISK SEEKING PEER TO PEER LENDER LOW RISK HIGH RISK P2P ECOSYSTEM- The Credit Union Model

6 INVESTORS BORROWERS RISK AVERSE LOW RISK CREDIT UNION RISK SEEKING HIGH RISK CONSTRAINTS OPERATIONAL EXPENSE INVESTOR TYPE (INSURED DEPOSIT) REACH (FIELD OF MEMBERSHIP)

7 Since 2008 Lending Club has issued over $33.6B in unsecured loans As of Q42017 over 2.7 Million individual loans, these loans have been issued in every state in the U.S. Total Unsecured Balances held by all credit unions in the U.S. on 3/31/2016 $86B

8 Average Operational Expense to Average Assets all CUs 3.07 FCU Max Rate 18% for term loans Credit Card Charge Off Ratio 2.21% for all Federally Insured Credit Unions

9 Kicking the Paper Habit - Online Mortgage Business Puts Consumers in Driver s Seat Taking the actual automation of the mortgage process beyond today s shopping stage calls for some fairly substantial changes in the status quo Mortgage Market Trends st Largest Loan Originator th Largest Loan Originator nd Largest Loan Originator 2017 Largest Originator 37.5% of all Mortgages were issued by NonBank Lenders Only five of the top 20 mortgage originators in 2006 are still active in today's mortgage market, according to a recent Fannie Mae report.

10 "In the last two years they've really hit the radar because they've been aggressively growing their staff and their loan originations," says Garcia. "They were way ahead of the pack in doing everything online or by phone and getting the technology in place to handle documents digitally. HSH.COM 3/13/2013

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13 THE SKY IS FALLING! Investor confidence is shaky Ignoring these companies is no longer an option I ve seen some of these loans... These lenders are beginning to attract increased attention from regulatory authorities. Regulatory guidelines have shifted in your favor... Now more than ever before you should exploring good loan diversification

14 What s Old is New

15 Hermann Schulze-Delitzsch

16 Opportunities

17 Credit Union Share of Small Depository Small Businesses Loans Sources: FDIC, NCUA, CUNA. 9.1% 9.7% 3.5% 4.1% 4.7% 5.3% 5.7% 6.2% 6.8% 7.4% 8.1% YOY 6/17

18 Even the Hundred Years War Came to an End

19 We will be in a rising rate environment for the foreseeable future Comparable long term assets (Residential Mortgages) will be less likely to reprice to higher rates Consumer demand for variable rate residential mortgages unlikely Credit Risk Premium Structured properly, CRE can be built with repricing of the rate on short schedules

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22 While Millennial home ownership is increasing, it still lags their parents ownership rates. You have to live somewhere

23 Based on a survey of our membership and that of other community based credit unions; we determined that 7-10% of our membership was either a business owner or owned an income producing property. Scott Adkins CEO Inspirus CU Seattle, WA $1.25B

24 Increased Regulation/Complexity/Competition in Mortgage Business

25 Increased Relationships Opportunities for expanded fee income and more deposit $$$$ Cross-Sell opportunities for personal business from employees and owners Ancillary business service product lines Payroll Merchant Services ACH Advanced Ckg Business deposits have increased at MCU from $5M (2008) - $29M (2017)

26 Business Services: All or Nothing? Technological Enhancements Core OLB E-Services Compliance Training Staffing High Touch

27 Spectrum I d rather have part of something than all of nothing Low Cost of Entry Lower Returns Less Risk Less Expertise More Reliance on 3 rd Parties All In Higher Cost of Entry Higher Expected Returns More Risk More Expertise Less Reliance on 3 rd Parties No matter where your credit union fits on this spectrum, there is opportunity.

28 Recommendations What Business are You In? Establish a Credit Risk Appetite Consumer Real Estate Business Lending Count the Cost Do the Policy Work Rent to Own Pick a Partner Develop Competency

29 Questions? Don Arkell Senior Consultant CU Lending Advice