This document summarizes the findings of a survey of MBL (member business lending) CUSOs on their experiences from 2007 to 2011 during the economic recession. The survey found that MBL CUSOs generally performed better than banks during this period, with lower business loan charge-offs. While some CUSOs saw issues like weakening business finances and unexpected lack of understanding from regulators, most addressed these issues by increasing portfolio management, adjusting underwriting standards, and diversifying their loan portfolios. Overall, the survey concluded that MBL CUSOs were well-positioned to weather the recession and continue providing value to credit union owners and members.

1. CU Conferences – Business Lending and Other ServicesGary Hess, PresidentRTE Financial Services, LLC

2. Weather the Tough Times…or Summer in Minnesota!

3. July 27, 2011 Walking back from lunch at the Lake Calhoun Beach Club

4. Target FieldThe summer we do not tell anyone about.

5. AgendaThe Economic Climate – 2007 to 2010Business Lending SurveyConclusions

6. Common AssumptionsBanks quit making commercial loans. Did they?MBL delinquencies sky rocketed. Did they?Commercial Real Estate Loans crushed the MBL CUSO providers. Did it?MBL has not recovered due to the economy. Has it?

7. Credit Market - NFIB2011 – 92% are having needs met or do not need to borrow (only a 2 percentage point variation since 2007)2011 – Only 3% list credit as #1 business problemLoan availability – worst in 2009 and 2010. About half way back to 2007 levelsSource: National Federation of Independent Businesses’ Small Business Economic Trends Report 6/11

8. NFIB Loan Availability

9. What does the Federal Reserve have to say about this??

10. Bank Commercial Lending2007 to May 2011

11. Bank Performance 2007 to PresentOctober 2008 - peaked at 1.6 trillion dollarsJanuary 2011 - lowest at 1.2 trillion dollarsOctober 2010 - 1.211 trillion dollarsCurrent - 1.263 trillion dollarsSource: Federal Reserve Bank of St. Louis research

12. Member Business Lending2007 to 2011

13. Member Business Loan Participation2089 of 7651 credit unions participating2007 – 25.2%

14. 2008 – 27.2%

15. 2009 – 28.6%

16. 2010 – 30.2%Member Business Loan ParticipationYear over year rate has been up and down Total MBLs outstanding is up:2007 – 17%2008 – 18.1%2009 – 9.9%2010 – 6.2%

17. How did MBL CUSOs Handle the Recession?

18. Survey PurposeWhat has been the MBL CUSO experience from 2007 to 2011?What did they do to counter the economic reality?Are MBL CUSOs still a viable alternative for MBL Lending?

19. Survey QuestionsPrimary types of loans in 2007Performance issues: 2007 to 2010Reaction to the issues: What worked?Loan performance variation?Underwriting adjustments?MBL CUSOs vs. BanksThe Recessions Financial Impact?Permanent changes to minimize future issues?

20. Loan Portfolio Type – 2007“Consensus”:Commercial Real EstateTermLines of CreditSBA – 40%1 – business acquisition, construction, commercial investment/owner occupied

21. Commercial Loan Volume2007 to 2008 – half up; ¼ down; ¼ even2008 to 2010 – up, down but by 2010 even or upOne participant example4 to 5 years to lend its first $1 Billion18 months (09-10) to loan its next $1 Billion

22. Loan Performance Issues 2007 to 2010General Recession issuesWeakening of business financialsUnexpected IssuesLack of credit union understanding of SBA benefitsLack of understanding by examinersEasy credit from competition (banks) looking for loans

23. Loan Performance Issues 2009Business Loan Charge Offs – Dec. 31, 2009All Banks – 2.45

24. Banks < 1B in assets – 1.59

25. All Credit Unions - .65

26. Survey Group - < .5Loan Performance Issues 2010Business Loan Charge Offs – Dec. 31, 2010All Banks – 2.27

27. Banks < 1B in assets – 1.51

28. All Credit Unions - .82

29. Survey Group – increased by at least 60%Response to Loan IssuesIncreased portfolio managementInternal groups and/or personnelWorking with ownersAggressive poor credit managementLoan reviews, reports, etc

30. Loan Performance Variations2007 - 201040% saw it equally across all loan typesOtherSmall unsecuredCommercial Real Estate (CRE)SBA???

31. Underwriting Standards2007 - 2010No major changes but more a “tweaking” of the processVerify Guarantor capability

32. Closer review of tenant finances