Catalyst Corporate Tops $46M Loan Participation Mark
Since signing on its first credit union in April to its new loan participation program, Catalyst Corporate Federal Credit Union said more than $46 million of the loans have been bought and sold.
The Plano, Texas-based corporate said it began developing its program in 2013 after the NCUA’s issuance of final rules that increased the loan concentration limit to 100% of a credit union’s net worth, up from the 25% limit that the agency had first considered.
Catalyst Corporate’s loan participation program officially launched in July 2013. Nearly two dozen credit unions have signed on since April.
The corporate serves as facilitator, bringing the buyers and sellers together in the loan participation process, but does not participate in the loans. It works with sellers to identify and assemble loan pools, which are comprised of auto loans and mortgages, and develop pricing.
Once a participation package has been assembled, Catalyst Corporate staff outlines the offer for sale, locates buyers, and gathers and provides the due diligence information on a secure website for buyers to review.
The corporate then coordinates the processing of documents between sellers and buyers, processes the settlement transaction, and provides monthly reporting and remittance services.
“Loan participations are an effective tool to help credit unions manage their business and their balance sheets,” said Jeffrey Hamilton, vice president of lending at Catalyst Corporate, “They can help offset liquidity challenges and concentration issues and enable credit unions to meet their members’ loan needs without exceeding policy limits or pressuring capital ratios.”
The $544 million Denali Alaskan Federal Credit Union in Anchorage, was among the first to bring a loan package to the table, according to Catalyst Corporate.
The credit union assembled a $39 million package of new and used car loans for participation to help a balance sheet that was 106% loaned out at the time.
“This helped us to mitigate risk,” CFO Eric Bingham said of the process that helped the credit union avoid new capital to offset loan growth.
The loan package was parceled out to a combination of more than a dozen credit unions in Texas, Hawaii, California, Oregon and Washington – some, by design, with less than $50 million in assets, according to Bingham.
For the $670 million Neighbors Federal Credit Union in Baton Rouge, La., the loan participation program helped to assemble a smaller package of $1.3 million worth of indirect auto loans earlier this year.
“The first loan participation package was just a test run,” said Jody Caraccioli, CFO at Neighbors FCU. “We wanted to get all the processes, G/Ls and reporting set up so we could do more.”
Based on its success so far, Caraccioli said the credit union is now following up with a $27 million package for participation in August.
“We happen to be located in an area that is going through an (energy-related) economic boom. We’ve experienced a 26% loan growth for the first six months of 2014,” she noted. “That loan growth has caused a liquidity challenge for us. This participation program has been helpful in allowing us to continue making loans.”
The program has been beneficial for buyers as well, said Jackie So, vice president of finance at the $300 million Foothill Federal Credit Union in Arcadia, Calif.
“We’ve been buying loans to help meet the growth outlined in our strategic plan,” So said.
Auto loans purchased through Catalyst Corporate’s loan participation program would help mitigate a loan portfolio stacked with real estate and business loans that Foothill FCU acquired from other credit unions and CU Business Group LLC, a Portland, Ore.-based business lending and services CUSO, she added.
“This helps us diversify,” So said.
Much of the recent loan growth in the credit union industry has been driven by larger credit unions, said Bruce Fox, EVP and chief investment officer for Catalyst Corporate.
“We’ve listened to our membership, and we were able to bring together a loan participation opportunity that specifically sets aside a portion of the package for smaller-sized credit unions so they can get a much needed boost in loan activity,” he explained. “It is a win-win-win all the way around.”