MBL Lenders Roundtable Discussion Bob Stowell Senior Vice-President/ Chief Strategy Officer US Federal Credit Union

Transcription

1 MBL Lenders Roundtable Discussion 2015 Bob Stowell Senior Vice-President/ Chief Strategy Officer US Federal Credit Union

2 Bob Stowell Senior Vice-President, Chief Strategy Officer US Federal Credit Union $1 Billion + assets 70,000+ members 33+ years experience, 9+ at USFCU MBL, Operations, Training, Investments, Credit/Debit Card

3 Learning Objective: A three-hour tour This session is for experienced MBL lenders to explore their most critical issues I will lead a general discussion on MBL topics Break Table Topic Session one Table Topic Session two Complete general discussion and wrap-up by Bob Stowell Table Leaders and their Table Topics: Each of these will repeat. Analysis Software John Pruitt Portfolio Management Andy Weingartner, Rob Farrington and Gary Sneed Participations sold and purchased Jeff Barnes and Larry Jones Starting an MBL Department Ethan Morris, Chuck Anderson Commercial construction loans Tom Ries and Dale Frankhouse Operating LOC s, BBC s and other Mike Poirier and Gwen Wong

4 Member Experience Business members, like your other members, want a memorable experience and great products and services. We have lots of competition in the marketplace and I will discuss this later. We are a great alternative to banks and other disruptors. How are you doing in offering Mobile solutions and on-line solutions along with great products and services.. Think differentiator. Remote check deposit Financial planning Merchant Services Mobile and on-line solutions- card payments, check deposit, cash management, mobile banking, etc.

5 Credit Unions versus Banks 1.1T vs 15.6T The 4 largest banks have more assets than the entire credit union movement. It took 106 years for CU s to grow to 1.1T, the banks grew that much in just the last two years. Banks control about 94% of the assets and credit unions about 6.5%. It was 5.6% in OPPORTUNITY!!!

6 MBL Stats (as of 12/31/14) Number of U.S. Credit Unions: 6,398 and decreasing about one per day!! Assets: $1,136T and growing!! Number of CU s offering MBL s: 2,288 and increasing!! CU MBL outstanding: $53,313,281,593 and increasing!! Average loan size: $215,394 MBL s as a % of assets at offering CU s: 5% 12 month loan growth: 12% As it stands now, almost 500 credit unions are or will be bumping up against the cap soon. (Without a change, options are to: moderate growth or participate out loans)

7 MBL Update and Issues (1) Competition It is not just banks. There are other disrupters. Community Development Financial Institutions (CDFI s) On-Line alternative lenders OnDeck Capital Kabbage Lending Club Prosper Fundation Funding Circle Lender-agnostic marketplaces (they create their own marketplace) Biz2Credit, Lendio and Fundera

8 MBL Update and Issues(2) Conversions: Fed to State and vice-versa. Taxi-Medallion/Uber Disrupter CU impact. CUNA System Structure and Governance Task Force Report. MBL Cap limits with growing balances, more pressure for CU s to either moderate or be in the participation arena. Raising the cap limit benefits credit unions currently offering MBL services and those CU s considering offering MBL services. (Meaning the cap is a barrier to entry into offering MBL services.) Proposed NCUA MBL Rule change.

9 NCUA Proposed Rule 723 Synopsis: the proposed rule provides the following: Principle vs. prescriptive based 1. Revises MBL limit to 1.75 times the applicable net worth requirement for a credit union to be categorized as wellcapitalized (Interpret this to mean) see a. through d below: a. Example A CU has $3 billion assets b. Well capitalized defined by NCUA as 7% capital c. $3 billion x 7% = $210 million d. $210 million x 1.75 = $367.5 million MBL limit 2. Allows CU to make decision to waive a member from a personal guarantee 3. Remove LTV limits and the waiver process completely 4. Lift limits on C&D loans 5. Clarify that participation in loans to non-members do not count against the statutory member business lending cap Costs to train examiners (approx 1.9m), supervisory guidance when review policies, and more interesting conversations with CU s and examiners (think difference of opinion) New or updated policies will be needed by credit unions and will get close scrutiny by the NCUA at exam time.

10 Portfolio Management

11 Portfolio Management Monitoring and Reporting Risk Rating Matrix Concentrations in the Credit Portfolio Location, Industry, Loan Type Host system capability issues Software for analysis and tracking Bukers, FICS, BrokerPro, BakerHill, Integra, Sageworks, Moodys, Fiscal, Web Equity Integration of MBL program into the ALM program and enterprise-wide risk considerations Pricing strategies and term Consideration for overall interest rate risk and liquidity management On every loan, consider What could possibly go wrong? Can you mitigate it? Spend more time in the loan write up detailing risks and mitigations.

12 Loan Loss Reserve Methodology

13 Loan Loss Reserve Methodology Historical Historical plus industry standards or General Valuation Allowances Impairment analysis Codification(ASC-Accounting Standards Codification) Codification FASB ASC 450 (formerly FAS 5) Codification FASB ASC (Impaired loans, TDR s) Codification FASB ASC (formerly FAS 114) Regulator/Examiner perspective Independent Accountant perspective Policy on TDR OREO Portfolio Accounting Procedures OREO Portfolio Management Procedures Environmental Factors Economic Underwriting changes Collection practices Local or national situations (such as housing or commercial valuations)

14 Examinations

15 Examinations NCUA hot buttons for MBL Key credit union operational issues Concentration risk Interest rate risk Use of CUSO s Loan Participations more important as CU s getting closer to Caps. Sold Purchased Internal exams External exams (NCUA and Third Party) Frequency Documentation and credit quality How does this change with the proposed NCUA rules? Portfolio Analysis

16 Workouts (Makeovers)

17 Workouts Collection strategies / philosophy Forms of modification Restructuring Forbearances Troubled Debt Restructuring (TDR) requirements What is your experience with TDR s? How did you handle items such as: Defining a TDR (Troubled Debt Restructuring) Items that can benefit TDR s e.g.: Increases the likelihood of repayment on loans to members having financial difficulty It lessens the likelihood of repossession or foreclosure losses

18 Workouts (continued) Define the accounting considerations Held for Use Held for sale Your Valuation Process Reporting and Tracking Loan Loss provisions Foreclosures OREO (Use of Appraisals, current comps, or other valuation methods) OREO assets: (Held for sale versus Held for use) Capital Improvements Accounting Interim Market value fluctuations Time frame Depreciation Environmental Factors

19 Political Issues

20 Political Issues NEEDED: Cap Limits legislation: 12.25% to 27.5% or the current translation based on the NCUA proposed rule Raising the Cap benefits both those credit unions currently providing MBL services and those thinking about offering MBL services. H.R and S.F H.R exempt loans to veterans NCUA Proposed MBL Rule 723 revamp Other

21 Follow up Questions? Thank you for your participation and support of the MBL Roundtable Thanks so much to all our Table Leaders Please make sure we have your address!!!

22 MBL Experienced Lenders Roundtable Discussion Bob Stowell Senior Vice-President/ Chief Strategy Officer US Federal Credit Union