Office of Credit Risk Management Update Linda S. Rusche, Director - PowerPoint PPT Presentation

Office of Credit Risk Management Update Linda S. Rusche, Director Philadelphia District Office 04/20/2017

Mission The Mission of the Office of Credit Risk Management is to maximize efficiency of the Agency’s lending programs by effectively managing program credit risk, monitoring lender performance and enforcing lender program requirements. 2

7(a) Loan Program 3

7(a) Portfolio Balance Sheet $ # 1 YEAR AGO CURRENT 1 YEAR AGO CURRENT (12/31/2015) (12/31/2016) (12/31/2015) (12/31/2016) OUTSTANDING GROSS BALANCE $75,044,347,848 $81,197,594,823 250,401 256,831 Gross Loans = Active Servicing + Active Defaults ACTIVE SERVICING BALANCE $69,461,355,059 $77,066,756,196 229,738 240,900 Active Servicing = Current + Stressed CURRENT BALANCE $68,357,029,189 $75,841,793,742 224,660 235,878 STRESSED BALANCE $1,104,325,870 $1,224,962,454 5,078 5,022 Stressed = Past Due + Delinquent + Deferred $385,853,366 $450,917,680 1,891 1,932 PAST DUE BALANCE $587,346,682 $597,502,778 2,895 2,737 DELINQUENT BALANCE $131,125,822 $176,541,996 292 353 DEFERRED BALANCE ACTIVE DEFAULT BALANCE $5,582,992,789 $4,130,838,627 20,663 15,931 Active Default = Liquidation + Active Purchases $1,710,953,946 $1,455,073,022 8,745 7,308 LIQUIDATION BALANCE ACTIVE PURCHASES BALANCE $3,872,038,843 $2,675,765,605 11,918 8,623 4

7(a) Lender Populations Federally Regulated Lenders Program / Lender Type # of Lenders # of Loans Gross Dollars SBA Dollars 7(a) Federally Regulated Bank 3,159 235,122 $76,150,022,129 $56,668,025,545 7(a) Credit Union 380 7,020 $1,216,865,673 $889,264,949 7(a) Farm Credit 12 82 $58,298,836 $46,863,610 Total: 3,551 242,224 $77,425,186,638 $57,604,154,104 *Gross loan count and dollars do not include loans from lenders whose SBA 1502 Lender Reported Data as of 12/31/2017 agreement is not open 5

7(a) Regulated Lender Peer Groups Active Cumulative % Cumulative % # of Gross Dollars # of Loans Gross Dollars SBA Dollars of Active's of Active Lenders Gross $ Lenders $350M or above 35 118,923 $37,392,169,437 $27,755,982,527 49.8% 1.5% $100M-<$350M 93 39,844 $16,191,501,800 $12,133,765,873 71.3% 5.6% $50M-<$100M 104 18,301 $7,153,186,370 $5,370,976,865 80.9% 10.2% $10M-<$50M 445 33,547 $9,879,089,715 $7,333,452,796 94.0% 29.9% $4M-<$10M 435 13,650 $2,808,990,927 $2,055,403,461 97.8% 49.1% $1M-<$4M 649 9,060 $1,447,975,021 $1,045,327,934 99.7% 77.7% <$1M 506 2,101 $230,138,912 $163,696,697 100.0% 100.0% Total 2,267 235,426 $75,103,052,182 $55,858,606,153 Inactive Cumulative % Cumulative % # of Gross Dollars # of Loans Gross Dollars SBA Dollars of Inactive's of Inactive Lenders Gross $ Lenders $350M or above - - $0 $0 0.0% 0.0% $100M-<$350M 2 973 $274,708,438 $209,773,237 17.2% 0.2% $50M-<$100M - - $0 $0 17.2% 0.2% $10M-<$50M 11 436 $168,348,022 $130,193,908 27.8% 1.0% $4M-<$10M 62 894 $364,145,527 $274,109,952 50.6% 5.8% $1M-<$4M 278 1,638 $523,429,551 $401,185,048 83.4% 27.3% <$1M 941 1,994 $265,210,775 $201,577,978 100.0% 100.0% Total 1,294 5,935 $1,595,842,313 $1,216,840,123 1502 Lender Reported Data as of 12/31/2016 *Active status based on if lender has approved a loan in the past 2 years. 6

PARRiS Methodology And Review Processes 7

PARRiS Re-structure Purple indicates metric creation, and red indicates proposed metric removal Performance 5 Year Cumulative Net Yield 5 Year Cumulative Net Yield 12 Month Default Rate 12 Month Default Rate 5 Year Default Rate 5 Year Default Rate Asset Management Stressed Loan Rate Stressed Loan Rate Early Problem Loan Rate Early Problem Loan Rate High Risk Origination Rate High Risk Origination Rate Regulatory Compliance Loans in Default Status > 3YR Rate Loans in Default Status > 3YR Rate 24 Month Repair/Detail Rate 24 Month Repair/Detail Rate 1502 Reporting Rate 1502 Reporting Rate Risk Management Total Risk Based Capital Ratio Total Risk Based Capital Ratio Non-Performing Asset Ratio Non-Performing Asset Ratio Lender Purchase Rating Forecasted Purchase Rate Special Items Average Portfolio SBPS Average Portfolio SBPS 5 Year Recovery Rate 5 Year Charge Off Rate Pub. Correct Action/No Regulator Pub. Correct Action/No Regulator 8

Lender Profile Assessment (LPA) Scorecard 9

PARRiS Scores and Risk Relationship Less than 30 ____________________________________________________ Lower Risk 30-43 ____________________________________________________ Moderate Risk 44 and Greater ____________________________________________________ Higher Risk 10

Passage for PARRiS Some Review Selection Criteria PARRiS score Time since last Risk Based Review Never reviewed Prior Risk Based Review assessment Portfolio performance Rapid portfolio growth Federal Regulator Order(s) 11

Risk Based Review Protocol for 7(a) Regulated Lenders Lender Profile PARRiS PARRiS PARRiS Full Delegated Assessment Analytical Targeted Review (PFR) Authority (LPA) Review (PAR) Review (PTR) Renewal Review Diagnostic data Virtual Review Narrow in Comprehensive Performed driven virtual of quantitative scope focused analysis of prior to review and qualitative on area(s) of PARRiS expiration of performed aspect of each concern one or components delegated quarterly on all LPA PARRiS more PARRiS including on- status analyzes Lenders component components or site review of LPA with other other areas loan files criteria 12

7(a) PARRiS Analytical Review (PAR) Timeline PAR REPORT SUBMITTED TO CONTRACTOR (GARCIA & SBA FOR FINAL REVIEW ORTIZ) TAKES INVENTORY LENDER SELECTED FOR PAR OF DOCUMENTS SUBMITTED BY LENDER PAR NOTIFICATION EMAIL SENT TO LENDER BY CONTRACTOR (GARCIA & ORTIZ) ANALYTICAL REVIEW LENDER HAS 30 DAYS TO CONDUCTED BY RESPOND TO CORRECTIVE CONTRACTOR ACTIONS Day 0 Days 1 - 3 Day 3 Day 8 Days 9-18 Days 19-20 Days 20 -23 Days 24-37 Days 38 - 43 Day 44 Day 74 LENDER ADVISED OF MISSING CONFIRMATION/ DOCUMENTS, REQUESTED INTRODUCTION EMAIL SENT TO SUBMIT REMAINING BY SBA FINAL PAR REPORT ISSUED DOCUMENTATION TO THE LENDER PAR KICKOFF: SBA CONTACTS LENDER BY LENDER SUBMITS REQUESTED PHONE AND DETERMINES DOCUMENTS TO SECURE PRIMARY POC (LIAISON TO DATA ROOM SBA FOR THE REVIEW) 13

7(a) PARRiS Targeted Review (PTR) Timeline PTR REPORT SUBMITTED TO CONTRACTOR (GARCIA & SBA FOR FINAL REVIEW ORTIZ) TAKES INVENTORY LENDER SELECTED FOR PTR OF DOCUMENTS SUBMITTED BY LENDER PTR NOTIFICATION EMAIL SENT TO LENDER BY CONTRACTOR (GARCIA & ORTIZ) TARGETED REVIEW LENDER HAS 30 DAYS TO CONDUCTED BY RESPOND TO CORRECTIVE CONTRACTOR ACTIONS Day 0 Days 1 - 3 Day 3 Day 8 Days 9-18 Days 19-20 Days 20 -23 Days 24-37 Days 38 - 43 Day 44 Day 74 LENDER ADVISED OF MISSING CONFIRMATION/ DOCUMENTS, REQUESTED INTRODUCTION EMAIL SENT TO SUBMIT REMAINING BY SBA FINAL PTR REPORT ISSUED DOCUMENTATION TO THE LENDER PTR KICKOFF: SBA CONTACTS LENDER BY LENDER SUBMITS REQUESTED PHONE AND DETERMINES DOCUMENTS TO SECURE PRIMARY POC (LIAISON TO DATA ROOM SBA FOR THE REVIEW) 14

7(a) PARRiS Full Review (PFR) Timeline LENDER ADVISED OF MISSING DOCUMENTS, REQUESTED TO SUBMIT REMAINING FINAL PFR REPORT ISSUED DOCUMENTATION TO THE LENDER LENDER SELECTED FOR PFR PFR NOTIFICATION EMAIL SENT TO LENDER BY FULL REVIEW STARTS CONTRACTOR (GARCIA & (ENTRANCE MEETING) ORTIZ) Day 0 Days 1 - 3 Day 3 Day 8 Days 9-18 Days 19-20 Days 20 -23 Day 32 Day 39 Day 44 Day 74 Day 104 EXIT MEETING CONTRACTOR (GARCIA & CONFIRMATION/ ORTIZ) TAKES INVENTORY INTRODUCTION EMAIL SENT OF DOCUMENTS SUBMITTED BY SBA BY LENDER PFR KICKOFF: SBA LOAN FILE SELECTION SENT LENDER HAS 30 DAYS TO LENDER SUBMITS REQUESTED CONTACTS LENDER BY DOCUMENTS TO SECURE BY CONTRACTOR RESPOND TO CORRECTIVE PHONE AND DETERMINES ACTIONS DATA ROOM PRIMARY POC (LIAISON TO SBA FOR THE REVIEW) 15

7(a) Delegated Authority Review Timeline LENDER SELECTED FOR PDR DELEGATED AUTHORITY REQUEST FOR CERTIFICATION LENDER SUBMITS REVIEW CONDUCTED BY LENDER SIGNS AGREEMENT LETTER FROM LENDER CERTIFICATION LETTER CONTRACTOR AND SENDS BACK TO SBA Day 0 Day 1 Day 1 Day 16 Day 17-30 Day 31-59 Day 60 Day 61-90 FOLLOW UP IF CERTIFICATION RENEWAL LETTER AND REQUEST FOR COMMENTS AGREEMENT SENT TO LENDER LETTER AND/OR DISTRICT FROM DISTRICT OFFICE OFFICE COMMENTS NOT RECEIVED DATE MILESTONE Day 0 Lender's Delegated Authority up for Renewal Day 1 Request for Certification Letter from lender Day 1 Request for comments from District Office Day 16 Lender submits Certification Letter Follow up if Certification Letter and/or District Office comments not Day 17-30 received Day 31-59 Delegated Authority Review conducted by Contractor Day 60 Renewal Letter and Agreement sent to Lender Day 61-90 Lender signs agreement and sends back to SBA 16

PARRiS Analytical Review Issues (PAR)  Debt Service Coverage does not meet requirements of SOP (large loans)  Lenders that sell in Secondary Market fail to maintain separate account “in trust” for Colson  1502 reporting rate that exceeds high risk threshold  Stale-dated liquidations (older than 3 years with no resolution)  Recovery remittances submitted beyond 15-day limit  Use of Lender Service Provider without SBA-reviewed agreement 17