CU Conferences – Business Lending and Other Services<br />Gary Hess, President<br />RTE Financial Services, LLC<br />
Weather the Tough Times…<br />or Summer in Minnesota!<br />
July 27, 2011 <br />Walking back from lunch at the Lake Calhoun Beach Club<br />
Target FieldThe summer we do not tell anyone about.<br />
Agenda<br />The Economic Climate – 2007 to 2010<br />Business Lending Survey<br />Conclusions<br />
Common Assumptions<br />Banks quit making commercial loans.  Did they?<br />MBL delinquencies sky rocketed.  Did they?<br ...
Credit Market - NFIB<br />2011 – 92% are having needs met or do not need to borrow (only a 2 percentage point variation si...
NFIB Loan Availability<br />
What does the Federal Reserve have to say about this??<br />
Bank Commercial Lending2007 to May 2011<br />
Bank Performance 2007 to Present<br />October 2008 - peaked at 1.6 trillion dollars<br />January 2011 - lowest at 1.2 tril...
Member Business Lending2007 to 2011<br />
Member Business Loan Participation<br />2089 of 7651 credit unions participating<br /><ul><li>2007 – 25.2%
2008 – 27.2%
2009 – 28.6%
2010 – 30.2%</li></li></ul><li>Member Business Loan Participation<br />Year over year rate has been up and down <br />Tota...
How did MBL CUSOs Handle the Recession?<br />
Survey Purpose<br />What has been the MBL CUSO experience from 2007 to 2011?<br />What did they do to counter the economic...
Survey Questions<br />Primary types of loans in 2007<br />Performance issues:  2007 to 2010<br />Reaction to the issues:  ...
Loan Portfolio Type – 2007<br />“Consensus”:<br />Commercial Real Estate<br />Term<br />Lines of Credit<br />SBA – 40%<br ...
Commercial Loan Volume<br />2007 to 2008 – half up; ¼ down; ¼ even<br />2008 to 2010 – up, down but by 2010 even or up<br ...
Loan Performance Issues 2007 to 2010<br />General Recession issues<br />Weakening of business financials<br />Unexpected I...
Loan Performance Issues 2009<br />Business Loan Charge Offs – Dec. 31, 2009<br /><ul><li>All Banks – 2.45
Banks < 1B in assets – 1.59
All Credit Unions - .65
Survey Group - < .5</li></li></ul><li>Loan Performance Issues 2010<br />Business Loan Charge Offs – Dec. 31, 2010<br /><ul...
Banks < 1B in assets – 1.51
All Credit Unions - .82
Survey Group – increased by at least 60%</li></li></ul><li>Response to Loan Issues<br />Increased portfolio management<br ...
Loan Performance Variations2007 - 2010<br />40% saw it equally across all loan types<br />Other<br />Small unsecured<br />...
Underwriting Standards2007 - 2010<br />No major changes but more a “tweaking” of the process<br /><ul><li>Verify Guarantor...
Closer review of tenant finances
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Business Services CU Conference

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Business Services CU Conference

  1. 1. CU Conferences – Business Lending and Other Services<br />Gary Hess, President<br />RTE Financial Services, LLC<br />
  2. 2. Weather the Tough Times…<br />or Summer in Minnesota!<br />
  3. 3. July 27, 2011 <br />Walking back from lunch at the Lake Calhoun Beach Club<br />
  4. 4. Target FieldThe summer we do not tell anyone about.<br />
  5. 5. Agenda<br />The Economic Climate – 2007 to 2010<br />Business Lending Survey<br />Conclusions<br />
  6. 6. Common Assumptions<br />Banks quit making commercial loans. Did they?<br />MBL delinquencies sky rocketed. Did they?<br />Commercial Real Estate Loans crushed the MBL CUSO providers. Did it?<br />MBL has not recovered due to the economy. Has it?<br />
  7. 7. Credit Market - NFIB<br />2011 – 92% are having needs met or do not need to borrow (only a 2 percentage point variation since 2007)<br />2011 – Only 3% list credit as #1 business problem<br />Loan availability – worst in 2009 and 2010. About half way back to 2007 levels<br />Source: National Federation of Independent Businesses’ Small Business Economic Trends Report 6/11<br />
  8. 8. NFIB Loan Availability<br />
  9. 9. What does the Federal Reserve have to say about this??<br />
  10. 10. Bank Commercial Lending2007 to May 2011<br />
  11. 11. Bank Performance 2007 to Present<br />October 2008 - peaked at 1.6 trillion dollars<br />January 2011 - lowest at 1.2 trillion dollars<br />October 2010 - 1.211 trillion dollars<br />Current - 1.263 trillion dollars<br />Source: Federal Reserve Bank of St. Louis research<br />
  12. 12. Member Business Lending2007 to 2011<br />
  13. 13. Member Business Loan Participation<br />2089 of 7651 credit unions participating<br /><ul><li>2007 – 25.2%
  14. 14. 2008 – 27.2%
  15. 15. 2009 – 28.6%
  16. 16. 2010 – 30.2%</li></li></ul><li>Member Business Loan Participation<br />Year over year rate has been up and down <br />Total MBLs outstanding is up:<br />2007 – 17%<br />2008 – 18.1%<br />2009 – 9.9%<br />2010 – 6.2%<br />
  17. 17. How did MBL CUSOs Handle the Recession?<br />
  18. 18. Survey Purpose<br />What has been the MBL CUSO experience from 2007 to 2011?<br />What did they do to counter the economic reality?<br />Are MBL CUSOs still a viable alternative for MBL Lending?<br />
  19. 19. Survey Questions<br />Primary types of loans in 2007<br />Performance issues: 2007 to 2010<br />Reaction to the issues: What worked?<br />Loan performance variation?<br />Underwriting adjustments?<br />MBL CUSOs vs. Banks<br />The Recessions Financial Impact?<br />Permanent changes to minimize future issues?<br />
  20. 20. Loan Portfolio Type – 2007<br />“Consensus”:<br />Commercial Real Estate<br />Term<br />Lines of Credit<br />SBA – 40%<br />1 – business acquisition, construction, commercial investment/owner occupied<br />
  21. 21. Commercial Loan Volume<br />2007 to 2008 – half up; ¼ down; ¼ even<br />2008 to 2010 – up, down but by 2010 even or up<br />One participant example<br />4 to 5 years to lend its first $1 Billion<br />18 months (09-10) to loan its next $1 Billion <br />
  22. 22. Loan Performance Issues 2007 to 2010<br />General Recession issues<br />Weakening of business financials<br />Unexpected Issues<br />Lack of credit union understanding of SBA benefits<br />Lack of understanding by examiners<br />Easy credit from competition (banks) looking for loans<br />
  23. 23. Loan Performance Issues 2009<br />Business Loan Charge Offs – Dec. 31, 2009<br /><ul><li>All Banks – 2.45
  24. 24. Banks < 1B in assets – 1.59
  25. 25. All Credit Unions - .65
  26. 26. Survey Group - < .5</li></li></ul><li>Loan Performance Issues 2010<br />Business Loan Charge Offs – Dec. 31, 2010<br /><ul><li>All Banks – 2.27
  27. 27. Banks < 1B in assets – 1.51
  28. 28. All Credit Unions - .82
  29. 29. Survey Group – increased by at least 60%</li></li></ul><li>Response to Loan Issues<br />Increased portfolio management<br />Internal groups and/or personnel<br />Working with owners<br />Aggressive poor credit management<br />Loan reviews, reports, etc<br />
  30. 30. Loan Performance Variations2007 - 2010<br />40% saw it equally across all loan types<br />Other<br />Small unsecured<br />Commercial Real Estate (CRE)<br />SBA???<br />
  31. 31. Underwriting Standards2007 - 2010<br />No major changes but more a “tweaking” of the process<br /><ul><li>Verify Guarantor capability
  32. 32. Closer review of tenant finances
  33. 33. Use more SBA
  34. 34. Lower LTV</li></li></ul><li>CUSO vs Banks<br />Majority reported banks losing customers/members<br />Not lending<br />Not renewing<br />Declines<br />Majority made more loans<br />Fewer loans: due to poor credit quality and not banks stopping lending<br />
  35. 35. Financial Impact<br />CUSO – majority saw it as positive for the CUSO<br />Better financial performance<br />Credit Unions need CUSOs<br />CUSO – unexpected negative for the CUSO<br />Given negative economy CUSO owners leery of investing<br />Members – generally good<br />Lower fees<br />More owners<br />
  36. 36. So, what have we learned and what should we do about MBLs?<br />Turn off Fox Business Channel<br />Turn off CNBC <br />Embrace the MBL product; research the MBL CUSO; trust the basics.<br />
  37. 37. Looking to the Future<br />Tweaking of the underwriting<br />Repayment sources<br />Monitor and focus<br />Change loan terms: reduce amortization<br />Lower LTV<br />Diversification<br />Some had already done so<br />
  38. 38. Conclusions<br />MBL CUSOs were well positioned<br />No major changes<br />Many minor changes<br />MBL CUSOs continue to bring value to owners and associate members<br />
  39. 39. Thank you and have a great summer.<br />Come visit me in Minnesota anytime!<br />
  40. 40. Questions?<br />Gary Hess<br />320-281-9765<br />gary.hess@rtefs.com<br />
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