At LoanStreet’s highly anticipated two-day virtual event, industry experts and thought leaders converged to delve into critical topics shaping the future of credit unions and banking. The event covered a diverse range of subjects, from macroeconomic perspectives to regulatory insights and practical strategies for navigating the evolving lending landscape. The following is a recap and key takeaways that we hope will inform your firm’s strategy in 2024.
1: Comprehensive loan analysis prevents long-term performance issues
In the first session of the Virtual Forum, LoanStreet’s Doug Callahan, VP of Data & Analytics led a two-part discussion with LoanStreet’s CEO Ian Lampl in which they set forth best practices for loan performance analysis.
Among the numerous insights from this session, one that stood out: incomplete loan analysis can lead to otherwise preventable performance issues in the long term. Similarly, they noted that lenders should be wary of using “rules of thumb” for their loan analysis, as over time those basic “rules of thumb” result in significant divergence from actual performance figures. There are subtleties when it comes to calculations and analytics when talking to various customers about their in-house systems, and some of these subtleties get lost. The combination of calculations across participations to create asset class or portfolio level metrics is something that clients often have trouble with and make pretty significant approximations in order to achieve. This reduces the accuracy and ultimately undermines the value and purpose of analyzing the performance.
These “non-errors” or “approximations” that may appear accurate in the short-term can actually lead to substantial differences in understanding over time, resulting in significant disparities in results over a multi-year period.
“Everyone’s got their favorite metric… but none of these can be ignored.”
From there, Doug led an analysis of loan data across the LoanStreet platform to identify key trends, such as charge-off and repayment rates, as compared to last year. The three key observations were as follows:
- Small recent increase in auto loan charge-offs is being driven by indirect and used auto loans.
- Prepayment rates for unsecured loans have slowed down significantly.
- Price adjusted returns for mortgages sold on our platform continue to rise.
"Oftentimes people can be surprised by the upside or downside on the monthly figures when the lifetime figures of an opportunity are telling a very different story about that purchase to their overall program."
2: The NCUA continues to support loan participations for balance sheet management
LoanStreet welcomed for the first time the Honorable Vice Chairman Kyle S. Hauptman to the LoanStreet Virtual Forum for a discussion with Ian Lampl on a variety of regulatory topics, including the agency’s approach to securitizations, credit union innovation, and more. Together with NCUA General Counsel Frank Krassman and NCUA Senior Advisor Sarah Bang, the group also discussed some aspects of the recently published NCUA Final Rule of Financial Innovation.
Of interest was Vice Chairman Hauptman’s thoughts on credit union innovation. He cautioned credit unions to avoid doing business the same way every year, highlighting the potential for credit unions should they embrace new, innovative solutions to support their member bases. In addition, he cautioned that while securitizations are a powerful tool, they are not all created the same, and encouraged those engaging to scrutinize any previously underperforming assets.
"Securitizations are very useful for managing a balance sheet, but I would want personally to know that they're eating some of their own cooking, and that even if I buy the first tranche or first piece that they're gonna keep some, and they say that in the docs."
"...if you are sophisticated enough to engage in [securitizations], they can be yet another tool in your portfolio to help you manage your balance sheet."
3: Despite slowing economic growth, credit unions are finding new avenues for success
In his return to the 2023 Virtual Forum, Curt Long, Chief Economist & VP of Research at NAFCU, shared his analysis of the economy and lending industry. Amongst his findings:
- Economic growth is slowing; a soft landing is still the most likely outcome, but there is still meaningful risk of mild recession. Tail risks (no landing, moderate to severe recession) are very small.
- The past year has been easy for the Fed, but it’s about to get more difficult. NAFCU expects multiple rate cuts in 2024 starting in Q2.
- Recent declines in long-term rates are showing cracks in the higher-for-longer hypothesis.
In addition, Curt presented research that illustrated the important and growing role credit unions play in providing commercial and small business loans during the recent entrepreneurial boom, highlighting the opportunity that credit unions have to capture this market segment:
- On a macro level, there has been a big surge in entrepreneurship since the pandemic, as measured by business startups, up 50% versus pre-Covid levels.
- According to the Fed Survey of Consumer Finances survey, the percentage of small businesses using credit unions as their primary financial institution reached an all-time high of 11.6% in 2022 (latest available data), and even higher (16.1%) amongst younger businesses (less than 5 years old).
- SBA-guaranteed commercial loan growth amongst credit unions has outpaced banks since the pandemic.
“As banks have been pulling up branches from quite a few communities, credit unions are coming in to fill in gaps.”
4: With the right tools, commercial lending offers credit unions endless opportunities to enhance and build member relationships
The final panel of the Virtual Forum was a commercial lending strategy panel led by LoanStreet’s Ian Lampl and Vinnie Farrell, VP of Commercial Lending, alongside Tru Treasury’s John Ballantyne and SunCoast CU’s Dominic DiMaio. The discussion began with the findings of LoanStreet’s 2023 Commercial Lending Survey, followed by a deep-dive into the best practices for credit unions to grow and serve their communities through commercial loans.
The best practices highlighted were:
- Be Detail Oriented: Make sure you have a clear understanding of what are all those deal types and mechanics that are coming so that you can establish the necessary controls.
- Automate Where Possible: Where you have automation opportunities. Is your underwriting, CRM and Loan Servicing System giving you the right tools so that you don’t need a hundred different mitigating controls to make sure you know calculations are right or underwriting standards are being met.
- Do Your Vendor Due Diligence: Evaluate tools, evaluate your tech stack, evaluate what’s out on the market and consider where you can make incremental improvements.
Some of the key data highlighted from commercial lending survey:
- Of the credit unions surveyed, 66% said they would either keep the same or increase the amount of commercial lending activity in 2024.
- For those that have commercial exposure, construction loans was the most popular by loan type followed by equipment financing.
- 78% of credit unions engaged in commercial lending to serve their communities.
- The biggest challenge to commercial lending was having in-house expertise, followed by risk and then technology/systems support.
“The majority [of commercial lending] is owned by the world commercial banks. So the opportunities for credit unions are endless, if you ask me.”
“Credit unions are not going to be able to jump in and do everything for everyone on day one. There are minimum table stakes that they need to arrange so they can say to a commercial client, "yes, we offer Treasury Management services here." So on the product side, payables, receivables, fraud prevention, and cash management at a minimum.”
"If credit unions are going to get into this game and win, they're going to have to do it with technology. You need all the pieces to come together, and I think credit unions are incredibly well positioned to grab market share.
Missed this year’s Virtual Forum but want to learn more?
Click to watch the full event recordings:
Day 1 – Analytics Discussion & NCUA Roundtable
Day 2 – Economics Update (NAFCU) & Commercial Lending Panel
Interested in discussing the topics covered during this year’s event?
Contact sales@loan-street.com today.
