1. Copyright 2008 Texas Credit Union League Increasing the Performance of Your Loan Portfolio John Kurtz - TCUL

2. Copyright 2008 Texas Credit Union League Agenda Agenda I.Current Lending Environment II.Underwriting & Pricing III.Lending Tips IV.An Old Friend Re-Visited V.Questions I.Current Lending Environment II.Underwriting & Pricing III.Lending Tips IV.An Old Friend Re-Visited V.Questions

3. Copyright 2008 Texas Credit Union League Current Lending Environment

4. Copyright 2008 Texas Credit Union League Snapshot of U.S. Credit Unions Savings increased from 4.2 in 2006 to 6.6 in March 2010. Loan to share ratios decreased from 82.3 in 2006 to 73.3 in March 2010. Loan growth declined significantly from 7.8 in 2006 to.03 in March 2010.

5. Copyright 2008 Texas Credit Union League Snapshot of U.S. Credit Unions (cont) New auto loan balances have declined from 5.5% in 2006 to -11.7% in March 2010. Used auto loan balances have increased from 0.9% in 2006 to 2.8 in March 2010. 60-day delinquencies increased from.68 in 2006 to 1.77 in March. Interest yields decreased from 589 bps in 2007 to 457 bps in March 2010.

6. Copyright 2008 Texas Credit Union League Snapshot of Local Credit Unions Deposit growth continues Loan Demand Slow Narrow Rate Gap to Work With. Deposit rates are as low as they can go. Good News….Possibly??? We have had 3 years of slow new auto sales. The consumer is about ready to purchase that new car. End of 0%.

7. Copyright 2008 Texas Credit Union League Slow EconomyCautious Consumers Regulatory and Compliance 0% Captive Financing or Our Lending Environment

8. Copyright 2008 Texas Credit Union League Underwriting & Pricing

9. Copyright 2008 Texas Credit Union League Underwriting Underwriting # of inquiries on credit report. Three Indicators to Evaluate a Members Level of Escalating Debt: # of total loans with balances # of new loans with balances

10. Copyright 2008 Texas Credit Union League FICO Score 08 Collections < $100 will no longer affect score. Like inquiries within 45 days count as one. % of total revolving available has more weight. A one time negative will have less of an impact. Credit Card Capacity represents 30% of credit score.

11. Copyright 2008 Texas Credit Union League Careful Underwriting Attention Red Light Shoppers!! Excessive Unsecured Debt UDR = Total Unsecured Balances Total Annual Gross Income If UDR < 20% Should be a Go! If UDR between 20% & 30% Caution! Caution! Will Robinson If UDR > 30% Abort Mission! Houston, we have a problem!

12. Copyright 2008 Texas Credit Union League Careful Underwriting (cont) LTV Decisions Use a consistent source of evaluation and stick with it! Make each loan to value decision a unique decision! The are A members that should be financed at 80% LTV and there are D and E members that can financed at 100%. Sample LTV Policy Statement – LTV will be determined on a case by case basis after evaluation of the risk. – Brett Christiansen

13. Copyright 2008 Texas Credit Union League FICO Score and Pricing Risk Based Lending Keep your tier structure simple (4 Tiers) A 700+ B 660 – 699 C 620 – 659 D Below 620 Set your C & D rates with your membership in mind Notice – All 700+ Paper is priced the lowest you can get!

14. Copyright 2008 Texas Credit Union League CUNAs E-Scan 2010 & 2011 Borrowers with sub-680 credit scores will find obtaining credit difficult, creating an opportunity for credit union lending. How Can We Lend To This Group?

15. Copyright 2008 Texas Credit Union League Shift to B, C, & D Paper (Show Me the $Money$) These are the members with the greatest need. These members have the least amount of loan options. These members are very loyal if you can help them. Aggressive captive financing will capture much of your A paper auto loans. Embrace Good Bankruptcies.

16. Copyright 2008 Texas Credit Union League Underwriting Tips – Risky Paper Underwriting Tips – Risky Paper Lend the member a reasonable amount of money for an auto suggest 50% of Annual Gross Request a cash down commitment. The members bad credit is not currently delinquent. At least older than a year. Only use a co-signer for young borrowers just starting out. Parents only!

17. Copyright 2008 Texas Credit Union League Underwriting Tips – Risky Paper (cont) Underwriting Tips – Risky Paper (cont) Dont give the member an apologetic close. Use this time to educate the member regarding their FICO. A loan closed properly is half collected. No account relationship with the credit union Collection calls within the 3 rd day

18. Copyright 2008 Texas Credit Union League Lending Tips

19. Copyright 2008 Texas Credit Union League And Away We Go……. New and Used Auto Rates the Same. One rate discount – Auto Pay Use the Auto Enhanced Score to Price All Auto Loans. Allow all loan ancillary products to be added to your loan. CL, CD, Gap, and Warranty

20. Copyright 2008 Texas Credit Union League And Away We Go……. Allow 90 day to first payment on all A,B, and C tiers. Term based on auto value and not on loan amount.. Charge $20 to skip a pay once a year. Keep half and place the other half with a charity group. Make your base auto rate 66 months instead of 60 Implement a Payday Lending Program. Hint…..REAL Solutions®

21. Copyright 2008 Texas Credit Union League And Away We Go……. Pay all staff a small fee for cross-selling and bringing over a auto loan. Pay members for referrals. Develop a proactive lending philosophy. Educate Staff Know Your Competition Match Rates. Thinking Outside of the Box – Pay your dealers $50 a loan simply to have the purchase order faxed to you and being able to close your member without the threat of being flipped at the dealership.

22. Copyright 2008 Texas Credit Union League RVs, Boat, & Motorcycle Loans Keep lending in this area to 700 + FICO scores. 10% plus T,T, & L down on all loan requests to start. Keep Unsecured Debt Load in Mind When Underwriting These Loans. Keep Minimum size on Motorcycles to 1000 CC.

23. Copyright 2008 Texas Credit Union League To Think About……. Why Do Credit Unions price Home Equity Loans Underneath the Market Rate of 1 st Lien Mortgages? You will lose some good loans if you require two years of tax returns on every self-employed borrower. Use good judgment and your relationship with them. A large amount of cash down or a great equity position can compensate for underwriting sins. Develop a simple business loan program. Price your loans 2% above the rate that they would normally be approved for.

24. Copyright 2008 Texas Credit Union League An Old Friend Re-Visited

25. Copyright 2008 Texas Credit Union League Waitress gets $50,000 from cranky Texan I still can't believe it, Luby's cafeteria worker says of bequest The Associated Press updated 8:37 p.m. CT, Fri., Dec. 28, 2007 BROWNSVILLE, Texas - For nearly seven years Melina Salazar did her best to put on a smile and tend to the every need of her most loyal and cantankerous customer. She made sure his food was as hot as he wanted, even if it meant he burned his mouth. And she smiled through his demands and curses. The 89-year-old Walter "Buck" Swords obviously appreciated it, leaving the waitress $50,000 and a 2000 Buick when he died. "I still can't believe it," the Luby's cafeteria employee told Harlingen television station KGBT-TV in an interview during which she described Swords as "kind of mean." Swords, a World War II veteran, died in July. But Salazar learned just a few days before Christmas that he had left her the money and car. I still can't believe it, Luby's cafeteria worker says of bequest The Associated Press updated 8:37 p.m. CT, Fri., Dec. 28, 2007 BROWNSVILLE, Texas - For nearly seven years Melina Salazar did her best to put on a smile and tend to the every need of her most loyal and cantankerous customer. She made sure his food was as hot as he wanted, even if it meant he burned his mouth. And she smiled through his demands and curses. The 89-year-old Walter "Buck" Swords obviously appreciated it, leaving the waitress $50,000 and a 2000 Buick when he died. "I still can't believe it," the Luby's cafeteria employee told Harlingen television station KGBT-TV in an interview during which she described Swords as "kind of mean." Swords, a World War II veteran, died in July. But Salazar learned just a few days before Christmas that he had left her the money and car.

26. Copyright 2008 Texas Credit Union League Questions Open and Closed End Lending?? Texas Ranger World Series Talk!