Sageworks and Ancin Cooley, founder and principal of Synergy Credit Union Consulting, presented a webinar (access recording http://web.sageworks.com/risk-in-mbl-cooley/) reviewing how credit unions can develop and grow member business lending programs for their commercial members. Review to find out the risks inherent in MBL as well as benefits to this concentration.

1. March 21 · 2017
How to grow and manage risk in the member business lending portfolio
under the new NCUA rule
PRESENTED BY

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The premier conference for lending and risk
New expanded agenda to include lending, credit and portfolio risk!
• Learn:
» Sessions dedicated to lending, credit risk and
portfolio risk
» Led by industry experts to address your
challenges around growth and risk
» Earn CPE credits
• Network:
» More than 250 bankers from 130 institutions
attend
• Apply:
» 98% of attendees recommend the Summit
» Offers actionable next steps regarding
business loan growth and portfolio
management
Sageworks.com/Summit

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Founder and Principal,
Synergy Credit Union
Consulting
acooley@syncuc.com

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Board of Directors
Per §723.3, a federally insured credit union’s board of directors must:
• Approve the commercial loan policy;
• Ensure the credit union appropriately staffs its commercial lending program in
compliance with §723.3(b); and
• Understand and remain informed about the nature and level of risk in the
commercial loan portfolio, including its potential impact on the credit union’s
earnings and net worth.

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Senior Management
• Understand the credit union’s commercial lending activities;
• Have a comprehensive understanding of the role of commercial
lending in the credit union’s overall business model; and
• Establish risk management processes and controls necessary to safely
conduct commercial lending activities.

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Meeting Experience Requirements
A credit union has multiple options to meet staff experience
requirements. For example, it may meet the requirements by training
and developing existing staff, hiring experienced professionals,
or by using a third party such as a CUSO or an independent
contractor. It is generally not prudent for a credit union that has
newly adopted a commercial loan program to initially rely solely on
training and developing existing staff, unless existing staff already
possess the skills, competencies, and experience required.

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Prohibited Activities (highlights)
The explicit prohibitions contained in §723.7 are as follows: Ineligible borrowers. A federally insured credit union may
not grant a commercial loan to:
Any senior management employee directly or indirectly involved in the credit union’s
commercial loan underwriting, servicing, and collection process, and any of their immediate
family members (a spouse or other family member living in the same household);
Any person meeting the definition of an associated borrower as set forth in §723.2 with
respect to any senior management employee directly or indirectly involved in the
credit union’s commercial loan underwriting, servicing, and collection process,
and any of their immediate family members; or
Any compensated director, unless the credit union’s board of directors approves granting the loan and the
compensated director was recused from the board’s decision making process.

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Meeting Experience Requirements
A credit union has multiple options to meet staff experience
requirements. For example, it may meet the requirements by training
and developing existing staff, hiring experienced professionals,
or by using a third party such as a CUSO or an independent
contractor. It is generally not prudent for a credit union that has
newly adopted a commercial loan program to initially rely solely on
training and developing existing staff, unless existing staff already
possess the skills, competencies, and experience required.

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MBL Growth Starts with Strategic Planning
7 Reasons Why Strategic Plans Fail
• Managers Afraid to speak truth to power
• Lack of Project Management Skills
• Overuse of SWOT analysis
• The problem is in the room
• Unspoken vested interests
• In constant fire drills
• Group Think

27. What is
Risk
Appetite?

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“a risk appetite statement resides at
the heart of an effective risk
management program and is linked to
the organization’s overall risk
management philosophy and strategic
ambition.”
The amount of risk, on a broad level, an entity is willing
to accept in pursuit of value. It reflects the entity’s risk
management philosophy, and in turn influences the
entity’s culture and operating style. … Risk appetite
guides resource allocation. … Risk appetite [assists
the organization] in aligning the organization, people,
and processes in [designing the] infrastructure
necessary to effectively respond to and monitor risks.
Risk Appetite Definition:

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Example Risk Appetite and Risk Tolerance

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31. “Your Risk Appetite
Should Drive All Your
Strategic Decisions”
Loan Growth
Risk Management
RiskAppetite

32. Talent management is key to
strategic success

33. Credit Unions with
competent and
engaged employee
do more with less.
Efficiency Ratio = Operating Expense/Operating Rev
Currently there are
2012 credit unions
with efficiency ratios
greater than 90%.

34. Talent Management Tip
Strong
credit
unionswrite
down their
“recipes.”

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Sales Risk Analysis Processing
Acquisition Collect
informatio
n
Credit
Analysis
Risk
Assessment
Approval Compliance and
Disbursement

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“UNDERSTANDING A COMPANY’S BUSINESS MODEL VS. THE BUSINESS PLAN IS THE KEY.”

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SBA Lending is great way to start or grow your MBL portfolio
This is an example of a 25-year commercial real estate loan priced at 6.0%.
Because the SBA guarantees 75% to 85% of each loan, lending institutions can use
this program as a tool to mitigate risk in their loan portfolio. The guaranteed portion of
each loan can be immediately sold on the secondary market. Let’s look at the math in
this sample loan:
• Loan Amount $100,000
• Guaranteed Portion $75,000
• Net gain on sale of the guaranteed portion $10,875 (14.5% premium)
• CU retained portion $25,000

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Document Review
Field staff should review credit approval memorandums for appropriateness. These memos should be a standard
format to ensure a consistent, complete, and fair evaluation of credit for all applicants. They should be commensurate
with the size and complexity of each credit facility, and must contain sufficient information for the approval authority
to make a fully informed decision.
• Assess the financial analysis within the credit approval memos to determine if decisions are sound and well
supported.
• Ensure unsecured, unguaranteed, and high loan-to-value loans are well mitigated
• Ensure management has assigned credit risk ratings that match the potential for loss.
• Document technical exceptions, credit administration weaknesses, and regulatory violations, and discuss any
concerns with the appropriate staff.

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Monitoring
• Determine if loan relationships receive timely ongoing reviews in accordance with Part 723
• Periodic reviews should be completed at least annually and should include updated cash flow and financial
analysis, a reassessment of the risk rating, status of covenant compliance status, documented site visits, collateral
inspections/reevaluations, and field audits if applicable; problem loans should be reviewed more often
• Frequent communication with a borrower will allow the credit union and borrower to establish a plan of action to
improve the likelihood of repayment
• Review loan servicing, monitoring, and tickler reports that identify all loan covenants, and ongoing monitoring
items, such as insurance policies, pending loan and collateral documents, and loan officer exception reports.
• Review the corresponding engagement letters to determine compliance with the contract
• Ensure the party requesting a review was independent from the commercial loan department, such as the
supervisory committee or an internal auditor

41. THE KEY TO MBL GROWTH

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Founder and Principal of Synergy
Credit Union Consulting
acooley@syncuc.com