GROWING COMMERCIAL SERVICES - IN 2021 AND BEYOND
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GROWING COMMERCIAL SERVICES IN 2021 AND BEYOND
MEET YOUR PRESENTER
LARRY MIDDLEMAN
President/CEO and Founder of CUBG
40 years of credit union and commercial banking experience
Accounting, finance, and CPA background
20 years in the CU industry; founded CUBG in 2002
Past Treasurer and Board Member, National Credit Union
Foundation
Past Board President, Big Brothers Big Sisters of SW WA
CU BUSINESS GROUP PROFILE • Largest business services CUSO in the industry • Working with more than 635 credit unions in 48 states • Staff of 70 • Headquartered in Portland, Oregon with second office in Salt Lake City, Utah • Industry leader with credit unions and regulators
FIVE OPPORTUNITIES TODAY 1. Serving your entire business membership through small dollar commercial loans 2. Buying and selling commercial loan participations to diversify your portfolio 3. Boosting profitability through targeted commercial real estate lending 4. Serving a niche market through SBA lending 5. Deepening relationships through a more advanced deposit product package
Macro Industry Trends
Many credit unions now have large, sophisticated commercial operations • Credit quality is WAY better than expected • Huge inflow of deposits – need to increase loan production INDUSTRY • Where can I buy a participation? TRENDS • I need to diversify my portfolio • What about treasury management or more advanced deposit services?
POLL QUESTION #1 What increase has your credit union seen in total deposits in 2021 over 2020?
Commercial Loans to Members
$90
Commercial Loan Dollars Percent of Total Loans $80.8B
12%
$80
$70 10%
$60
6.95% 8%
$50
Billions
$40 6%
$30
2.36% 4%
$20
2%
$10
$8.9B
$0 0%
2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: NCUA 5300 reportsTotal Commercial Loans
As of 12/31/2020 State
& Participations
Boeing Employees WA $ 1,987,278,331
GreenState IA $ 1,571,364,154
Mountain America UT $ 1,163,374,119
25 LARGEST Alliant
Alaska USA
IL
AK
$ 1,035,235,522
$ 986,866,135
COMMERCIAL Bethpage
Digital
NY
MA
$ 970,316,303
$ 891,182,532
PORTFOLIOS Royal
Kinecta
WI
CA
$ 883,446,656
$ 878,042,448
Bellco CO $ 841,769,470
MIDFLORIDA FL $ 797,203,650
Numerica WA $ 778,216,332
Central Minnesota MN $ 779,508,886
Security Service TX $ 700,599,961
Lake Michigan MI $ 695,427,863
Landmark WI $ 692,479,385
Community First WI $ 669,478,114
Idaho Central ID $ 665,385,017
Beacon IN $ 633,867,415
Vystar FL $ 620,492,189
America First UT $ 581,310,004
ESL NY $ 565,678,654
Nusenda NM $ 557,326,817
Spokane Teachers WA $ 554,980,189
Teachers NY $ 546,715,276Credit Unions vs. Banks
Commercial Loan Delinquencies as a % of Outstandings
5.85 5.92
5.74 All Banks
5.03 5.08
Banks < $1B
4.00 3.93
All CUs
3.18
2.82
2.67
2.57
2.28
2.09 2.05
1.97
1.69 1.77 1.70
1.51
1.32 1.24 1.32 1.28
1.19 1.22 1.20 1.20
1.06 1.12 1.11
0.97 0.89
0.84
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
*Delinquencies are defined as 30+ days past due Source: FDIC call report and NCUA 5300 reportsCredit Unions vs. Banks
Commercial Loan Charge-Offs as a % of Outstandings
2.27
All Banks
Banks < $1B
1.51
All CUs
1.26 1.24
0.98
0.85 0.83
0.81
0.77
0.53 0.52 0.52
0.44 0.43
0.35 0.37 0.38
0.28 0.28 0.30
0.26 0.24
0.21 0.21 0.22
0.18 0.19 0.15 0.17 0.19 0.16
0.15 0.18
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: FDIC call report and NCUA 5300 reportsOpportunity #1 Serving ALL of Your Business Members
Commercial Loans to Members
$90
Commercial Loan Dollars Percent of Total Loans $80.8B
12%
$80
$70 10%
$60
Average Loan Size
$399,565 6.95% 8%
$50
Billions
$40 6%
$30
2.36% 4%
$20
2%
$10
$8.9B
$0 0%
2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: NCUA 5300 reportsSMALL LOANS TO BUSINESSES
• Most credit unions focus on larger CRE deals; this
means many members are not served
• Small business loans need different credit criteria
• Streamline underwriting of small loans
More than just a FICO score
1 year tax returns
Calculate key ratiosPOLL QUESTION #2 Does your credit union have a different lending program for small dollar loans vs. larger CRE loans?
Loans up to $100,000 Business vehicles Business credit cards Working capital lines of credit Business term loans PRODUCT Include small, simple real estate LINE 1-4 family investor real estate Max loan $150,000 – $250,000
UNDERWRITING CRITERIA
Criteria include: Or use a business credit
scoring model:
• 1-year DSCR > 1.25
• SBA uses FICO SBSS for all
• Business credit score
loans under $350k
• Minimum net worth
• Other LOS systems have
• Minimum liquidity some level of scoring built in
or associated with the LOS
• Minimum time in business
• 1 year of tax returns requiredPOLL QUESTION #3 Which Loan Origination System does your credit union use?
Opportunity #2 Commercial Loan Participations
Purchased Commercial Loan Participations
$14 Participations are ~16% $13.5
of total commercial loans
$12.0
$12
$10.9
$10 $9.5
Billions
$8 $7.7
$6.8 $6.7 $6.8
$6.4 $6.4 $6.2 $6.2 $6.4
$6
$4.9
$3.9
$4
$2.8
$2.0
$2
$0
2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: NCUA 5300 reportsCOMMERCIAL LOAN PARTICIPATIONS
Demand today greatly exceeds supply
Every CUBG network participation is oversold by 10x or more
Many digital participation platforms in the
industry today
Makes shopping or selling much easier
CUs selling with premiums
Due to lack of supply, consider
Opportunity #3Opportunity #3 Targeted CRE Lending
TARGETED CRE LENDING
1. Expand your 2. How will you win
network of deal the deal?
sources
• CUBG, other • Lowest rate
CUSOs, CRE • No prepayment
brokerage firms penalty
• Venture outside • Speed and ease of
your core market transaction
area • Time to close
• Surety of closeOpportunity #4 Serving a Niche Market Through SBA Lending
Dollar Amount of SBA Loans, All Credit Unions
$2.70 B
$2.34 B
$2.05 B
$1.98 B
$1.54 B $1.60 B
$1.33 B
$1.09 B
$.94 B
2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Financial Performance Reports Aggregate• Heightened awareness of the
benefits of SBA via the PPP
program
• Make loans the CU would normally
not do
WHY • Guarantees mitigate credit risk
SBA?
• Guaranteed portion can be sold at
huge premiums
But yes…these loans are a lot of
work and must comply with SBA
requirementsOpportunity #5 Upgrading Your Deposit Product Package
Total Commercial Share Deposits, All Credit Unions
$59.02 B
$40.96 B
$35.00 B
$30.99 B
$27.93 B
$23.16 B
$19.70 B
$16.24 B
2013 2014 2015 2016 2017 2018 2019 2020
Source: Financial Performance Reports AggregatePOLL QUESTION #4 Does your credit union require borrowers to keep their primary deposit account at the credit union?
THE DEPOSIT PRODUCT PACKAGE
Why even bother?
• Large core deposits
• Risk management for lending relationship
• Cross-sell opportunities
• You need this to be the true primary financial institution
Moving toward a full treasury management suite is a lot of work and
requires significant expertise and resourcesACH Check
Account Debit Positive
Analysis Block Pay
Zero
Balance Excess Funds Fraud
Accounts ACH
Management Prevention Positive
Pay
Sweep ACH
Services Origination
The - Credits
Business Corporate
Checking Cards
Online Information Account Payables Wire
Banking Transfers
Management
Bill Pay
Mobile
ACH
Banking Electronic Receivables Origination
Data
- Payroll
Interchange
(EDI)
ACH
Origination
Merchant - Debits
Bankcard Remote
Services Deposit Lockbox
CaptureQuestions?
THANK YOU
CU Business Group provides business Larry Middleman
lending, deposit, and consulting President & CEO
services to credit unions nationwide 971-244-6394
LMiddleman@cubg.orgYou can also read
