Credit Union Exam Solutions Presents With Flying Colors

Treichel: Hey everyone.

This is Mark Reel with another
episode of With Flying Colors.

I'm excited today to be here with Bill
Peyton from Alloa Federal Credit Union.

Bill, how are you today?

I'm doing

Bill Paton: great, mark.

Thanks for having me.

Treichel: Alright.

Interesting times.

Hey, I had you on the
podcast one other time.

I know we talked about capital markets
back then, and we're gonna talk

about some nuances related to that.

But I saw on LinkedIn you were making
reference to a loan participation program.

That had just passed $3 billion in
transactions that a lawyer has, and

I thought it would be good to talk
about that program and how it's been

working for a lawyer and how it's been
working for your client, credit unions.

Yeah.

I,

Bill Paton: Appreciate you reaching
out and yeah, we recently last

month crossed the $3 billion mark
in, in terms of transactions.

On our PLA platform.

We've gone over 4 billion
in total for the program.

Just and it's a really interesting
kind of history of what happened there,

and I think that's the most, most
important part of the entire program.

But just real quick probably
like eight years ago, a lawyer.

Used to purchase corporate,
federal credit unions were able

to purchase loan participations.

It was called Part five Authority
that they had, and they could purchase

participations from credit unions.

That was taken away during the crisis.

But we still had a lot of credit unions
that had the need to sell participation.

So we had gotten a phone
call from a credit union.

Just saying, Hey, we know you have a large
network of credit unions that own you.

Can you help us?

And so we just brokered a deal
and then that became another deal

and then that became a third deal.

And I remember going into my boss
at the time and saying, Hey, I

think we have something here.

Do you mind if I kinda mess
around with it a little bit?

And he said, sure.

Just don't do anything stupid.

Always good advice, which
is great career advice.

And while I can't say I didn't do anything
stupid I do think that the the benefits

certainly outweighed the risks in that.

And we had did a, about a billion dollars.

But during that timeframe
our CEO Todd Adams.

Said, Hey, we, there's really
something here, and I think we can

do more than just brokering deals.

And that's needed.

And there are pe there are a
lot of people that do that.

And they're really good at that.

And he really wanted to create
a end-to-end solution created

by the credit union industry.

And so that's what we did.

And they invested a lot of time,
a lot of resources so credit

to him, our senior management
team and our board for doing so.

And it's really the first.

End to end loan participation solution
created by the credit union industry.

Industry.

There are others and
they're very good too.

I but this is the first
created by the industry.

And so yeah, so we've done, like
I said, a billion dollars before

that, 3 billion now and growing.

We've got.

Over 500, I think maybe even closer
to 600 credit unions on the system.

Right now.

There's new ones coming every single
day and it's it's great and it plays

really well into the core corporate
hemisphere, I think is the right words.

Corporates, maybe you
know better than I do.

So let me ask you this 'cause because
I don't think anybody really knows.

Corporates we believe were created in
the late sixties or early seventies.

We don't know when

Treichel: that sounds right?

I might have to, yeah,
I'd have to go back.

The best way to check that might be NNC
a's annual reports, which are on PDFs.

They used to be very well
organized on NCAA's website.

I was looking.

Messing around looking for a year
the other day and couldn't find it.

But that's probably the best way to check.

If you guys couldn't find it, I
would say that there's probably an

annual report that references it.

I'll

Bill Paton: I'll definitely
have to do some digging.

That'll be a fun research project.

But corporates are created
really to do two things, right?

They're created to provide liquidity for
credit unions and to help them access

the Fed when the banks effectively.

Combine together and get them
out of the banking space.

And so we continue to do that
today just in different ways.

And loan participations is a perfect
example of being able to provide liquidity

when they need without having to draw on
a line of credit and also additionally

invest in great assets and system assets.

I.

When they have the additional
capital, and the additional liquidity.

So it's really a credit union.

It's a really a credit union
solution to, those problems.

And we love it and we're heavily
invested in it and we'll continue to be.

So yeah we're super proud of it.

And really what it's done for our
company and we live for the industry,

Treichel: A couple things I wrote
down here as you're chatting.

So 600 credit unions on the system.

You've got the portal.

I think in the old days maybe when you
were helping be a matchmaker, that might

have been more of a hard copy type set up.

And now you've got this portal
and so 600 credit unions on it.

I'm assuming that means you have
some that are on there to buy

some that are on there to sell.

Any kind of a mix you could
relate relative to that and Yeah.

Had any thoughts on on the portal and
how that all works and Yeah, in that?

Yeah, absolutely.

So

Bill Paton: using the term
matchmaker great term.

That's really what we did
prior, and we still do that.

So of the 600 credit unions, let's say.

It's four to one, four and a
half to one buyers, to sellers.

The but it's, and it's, I think a
lot of people when they think about

this they say it's participation have
historically been, and this is a, it is a

fun thing to go and look at the numbers.

Historically, it's been
like a larger credit union.

Type of a play, over the last 20 years.

This is not a new solution.

It's been around for a very long time.

But what's been really interesting is
to see how the smaller credit unions

have started to utilize it, right?

And so we have a credit union that
is 14 or $15 million that sells some

mortgages to us because they serve.

A very specific sag.

And those sag, the couple people need
mortgages, but it's only $15 million.

So you throw a couple mortgages
on that kind of really

chunks up the balance sheet.

And then we have, 20, $30
billion credit unions that sell

through us on a regular basis.

And it's great because that
system is agnostic to size

and it helps however, right?

And so there is the matchmaking
or marketplace side of things.

And there is the system was really
built with the NCUA guidelines, right?

The requirements for
participations in line.

So if you're a buyer, when you go through
our process, you don't even know that

you're going through the process, but
you can't actually complete the deal

without doing all of the requirements
that the NCA says you have to do.

What you gotta look at.

The underwriter, the originating
credit unions due diligence package.

You gotta look at the
loans, you gotta make notes.

Whatever it is, you gotta
have an agreement in place.

And we have one single agreement.

We actually, it's
created by credit unions.

We locked 12 credit unions, six
buyers and six sellers in a room.

I'm not joking about that.

We locked them in a room and
said hey, you guys gotta come up.

We have a relative framework.

You guys gotta figure out the rest of it.

And they did, and it's partial
it's not partial to either side.

A lawyer is a party to it as well.

So as a credit union ourselves
as a depository ourselves,

we have a balance sheet.

And so we will help facilitate the flow.

So today, when credit unions have
a lot of liquidity, you don't

really need somebody to step in.

But when liquidity is needed and credit
unions aren't buying like they normally

would like today a lawyer will step in
and we actually can help put, we can put

some of those loans on our balance sheet
to help to sell in credit union offload

those loans and feel comfortable that
they're not gonna, that they can meet

their liquidity and balance sheet needs.

So those are just some things.

Yeah.

Those are high level talking points about

Treichel: it.

I'm sorry.

And the NCA compliance, so I'm assuming
that would deal with the third party

due diligence requirements, correct?

Yeah.

And the,

Bill Paton: yeah, so we don't go
through and I don't want anybody

to say, Hey, a lawyer is doing
the due diligence with you.

Correct.

We're not but everything that you
need to be able to do is there, right?

So when you go and see a package.

Everything that you need is there.

Now you can request more for sure.

But everything that is needed to fulfill
those requirements will be there for you.

The sellers required

Treichel: to it's like
filling out anything line.

Correct.

You need the, you need to put something in
these five spa buckets, and then the buyer

goes and looks at that bucket buckets,
and then they make their own decisions

based on their own due diligence.

But you have the portal
there so that they.

They can do it.

Okay.

Yeah.

Got it.

Bill Paton: And again, because
we are a depository and part of

the, what corporates do, right?

Facilitate the flow of money from
institution to institution, that

all happens automatically, right?

So there's no more wires,
things of that nature.

That's all done through
our payment rails already.

And so that really helps reduce
some of the backend headaches.

And then where we really shine
is on that monthly reporting.

So we do a lot of the reporting.

So again, once a deal closes,
that's the fun part of it.

The not so fun part is what
happens when it closes, right?

It's.

It's, you have to send
your reports to investors.

You have to send your
payments to investors.

All that is done and it's done
automatically because of what we are.

There are fintechs that do similar
things, but they can't do it

because they are not a depository.

Now they've done a great job
figuring other ways around that.

But because of what we are we are able
to have that and have that happen.

Got it.

Automatically.

Treichel: So yeah, it's the credit
union advantage, if you will.

Yeah, it is.

Types of loans, are there any do
business loan commercial signature?

Yeah, completely

Bill Paton: agnostic.

We've done some fun ones.

So ATM like the ATM.

Machine, right?

Some of those we've done airplane loans.

We've done power pressure washers.

We've done huge commercial deals.

I'll say, the vast majority
of our stuff is plain vanilla.

We serve right, so plain
vanilla auto loans, mortgages,

recreational, some signature loans.

But we get fun and have some.

Some interesting things across our paths.

That's actually fun.

I'll see something come through and
I'll say, Hey, send me that package.

I wanna look at these
loans a little bit more.

Just 'cause I, it's been a while
since I've been on the underwriting

side of things and fun to see
what type of loans come about.

So

Treichel: that's that's great.

And, yeah the pendulum swings on
when credit unions do or don't

have liquidity and then even.

If credit unions don't
there's, don't have it.

There's some that do.

And if credit unions in totality do
have it, there's some that don't.

So that, that goes back to the
the matchmaker type concept.

Have you just curious anecdotally in
some of my conversations with credit

unions I'm seeing where NCA is saying,
Hey, your loan to assets are too high,

your loans to share pick some barometer
of, of liquidity that relates to loans.

I've seen credit unions get
beaten up in that regard.

Have you, I'm imagining you've had
people calling saying, Hey, NCA, saying

I'm my liquidity's getting a little
tight, so I wanna sell some loans.

Is are those kind of conversations happen?

Bill Paton: Yeah.

It's been happening for years, right?

So I've been in my position I was
an underwriter right when I started,

so I've been here for 18 years.

That's been happening forever.

The super interesting thing is it's
different from region to region.

So certain regions will
have different parameters.

I'm shocked over here.

And I won't say which ones.

I'll just say it does
vary from my experience.

This is purely my experience.

It does vary and sometimes it'll
vary from examined or examiner and

whatever they're looking at, right?

Yep.

And but yeah, it, that happens constantly.

What we have noticed more than anything.

They won't say, Hey, your loan
to share ratio or your loan to

asset ratio is getting too high.

You need to sell these loans.

They'll say, Hey, you've
got your liquidity.

You've got your loan to assets are X
and that's historically been okay for

you, and you've got your lines of credit
and you've got your non-member deposit

ability and you're able to raise,
certificates of deposit or what have you.

You have your outlets, but what you
don't have is your ability to sell loans.

We want you to get set up to be able to
do so whether that's through a lawyer

or a competitor or what have you, or
just simply you have it internally set

up so that you know if you need to sell
do and in fact right now we're going

through with the credit union to sell a
$250,000 pool, which is, truth be told,

that is so small for this credit union.

It's probably not worth.

A lot of people's time, except
for that's what they wanna be able

to do so that they know they're
ready to sell when they can sell.

And yeah, that's what I'm saying.

It's not so much a, Hey, you've hit 95%
sell, 5% of your of your loan to assets.

So sell 5% of it to get under that 90%
threshold is more we want you to get

ready to be able to do I'm viewing it as.

They're looking at
another liquidity source.

Treichel: Sure.

Bill Paton: No, exactly.

And they might want 'em to start selling.

I wouldn't be surprised for 'em to
say, Hey, sell it one once a year.

Kind of like testing your line of credit.

Treichel: Yeah, no, that makes sense.

Makes a lot of sense.

Very good.

So Bill, is there anything that I should
have asked you about this program that

you wanted, that you want to make sure
you mention or any, anything else under

the sun, interesting times right now.

Any, anything else you want to touch
on other than this program, but

anything on the program first, and then
anything else you wanted to chat about?

Yeah,

Bill Paton: I'll I'll
say this we are super.

Excited and proud of our platform
and we have big things for it.

But it is just one
thing that we do, right?

And I think it's a great compliment to
credit unions and the system at large,

but it's not the only thing we do.

Anything that credit unions are looking
for liquidity investments, capital

in general look to your corporate.

And I won't just say a lawyer,
look to your corporate first.

And if you're not a part of a corporate.

Understand that it can do a lot
for you that you may not even know.

So I'll just give a kind of a pitch
to the overall corporate structure.

We do a lot more than people think.

We can.

I.

And then two, I'm going to respectfully
decline Any any thoughts what is

going on in this hectic turbulent
world right now as I am not the

expert in any way, shape, or form?

Very good.

Very good.

Treichel: Got it.

Got it.

And bill if someone's listening to
this and they, they're a member of your

corporate or another and they wanna chat
with you about this program and maybe

potentially join your corporate what's
the best way for them to reach out and

chat with you about this or anything else?

Yeah

Bill Paton: LinkedIn is always great.

So it's William and then P-A-T-O-N.

At on LinkedIn and then you can
hit, you can shoot me an email.

It's bill dot PATO n@alawyercorp.org.

So that's A-L-L-O-Y-A.

COR p.org.

I know it's a mouthful, but that's the
that's the email address and I'm not

going to give out my cell phone number
because I can't imagine what types of text

messages I'll be getting from some people.

So yeah the LinkedIn email's great.

And yeah, thanks.

Thanks for having me.

You got it.

Really appreciate it.

Treichel: This has been fun.

It sounds like a great program.

Another tool that credit unions
can have in their toolbox and.

I'm glad it's working so well
for credit unions and lawyer.

Bill, thanks so much for your time today.

Bill Paton: Appreciate it, mark.

Thanks.

Forward talking soon.

Treichel: You got it.

And listeners, I want to
thank you for listening.

As always, I hope you'll
listen again soon.

Mark Tril, signing off with flying colors.