November 2, 2017

By Bob Coleman
Editor, Coleman Movers and Shakers

Coleman Movers & Shakers — Tony Zara Joins Newtek as EVP, Credit and Risk Management

Tony Zara Joins Newtek as EVP, Credit and Risk Management

Barry Sloane, Chairman, President and Chief Executive Officer says, “We are very excited to welcome Tony Zara to our team. With his depth and breadth of experience in business development and SBA loan credit evaluation as well as his expertise in funding SBA 504 construction loans and term-loan financing, we believe he will help improve and augment policies and procedures, credit underwriting, transactional deal flow and funding in NBC’s SBA 504 program.

Tony has over 15 years of experience in strategic planning, business development and SBA loan credit evaluation with expertise in SBA 504 loan products. Most recently, Zara was Executive Vice President, National Sales and Director at Mercantile Capital Corporation, a wholly owned subsidiary of Iberiabank Corporation, where he helped develop a national lending business that specialized in providing fixed-asset acquisition and construction financing to small business owners through the SBA 504 loan program. In addition, Tony oversaw and was part of a national sales team that funded over $2.2 billion in SBA 504 loans.

Zara holds a Bachelor of Science in Economics with a concentration in Finance from the University of Pennsylvania’s Wharton School of Business Undergraduate Program.

Heather Luzzi Named Sacramento SBA District Director

“Heather Luzzi is an experienced banker and leader who understands the challenges of small business owners who want to start and grow companies in the Sacramento area,” says SBA Region IX Administrator Michael Vallante. “Heather will be a strong advocate for the Sacramento District’s business community.”

Luzzi previously held leadership positions at several financial services organizations including Senior Account Executive, Branch Manager, and Regional Production Manager. Most recently, she served as Senior Vice President and Managing Director of SBA Lending for a small community bank. She has also worked at SBA as Senior Analyst, District International Trade Officer, and Lender Relations Specialist.

Carlos Mendoza Retires as SBA Fresno District Director

Carlos Mendoza has been a strong leader and advocate for small businesses across the country,” said SBA Region IX Administrator Michael Vallante, in a statement. “His dedication to people who start and grow businesses, and his commitment to the community has made a difference in the lives of many. Carlos has made many significant contributions to the Small Business Administration, and entrepreneurs during his tenure, and he will be missed.”

During Mendoza’s 15 years in Fresno, he served as an advocate for Central California and Central Coast small businesses, bringing additional resources to the Valley including the Emerging Leaders mini MBA program, several PRIME grants, a Women’s Business Center, and the Small Business Development Center.

In 2014, the Small Business Administration bestowed the Eisenhower Award for Mission Support, SBA’s highest honor, on Mendoza in recognition of his exemplary contributions to SBA’s mission.

For the last 15 years, Mendoza has volunteered as a board member of the local Combined Federal Campaign, the federal government’s official philanthropy employee-based program which has raised millions of dollars for local nonprofit and community based organizations.

A Correction

SBA says I attributed a quote on Tuesday to the wrong SBA official regarding equity injection for startups. I have removed his name and the quote from the article.

Upcoming SBA Lending Professional Industry Events

FLAGGL, November 13-15, Orlando

Restaurant Finance & Development Conference, November 15-17, Las Vegas

10th Annual 2017 SBA Secondary Market Summit, December 4-5, Washington D.C.

Coleman’s 2017 SBA Lending Awards, December 5, Washington D.C.

The SBIC Summit: Increased Profit, Improved Regulatory Compliance, December 6, 2017 Washington, DC

USDA Rural Development Lenders Meeting, December 7, 2017 Washington, DC

Southeastern Small Business Lenders Conference, March 7-9, Asheville

Mid-America Lender’s Conference, April 15-17, Fort Worth

America West, June 20-22, Costa Mesa

November 3, 2017

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — Newtek Forecasts Zero Earnings from banc-serv

Says Newtek President & CEO Barry Sloane in yesterday’s 3Q earnings call.

Barry again confirmed banc-serv was the target of the FBI raid that seized company records.

New information to the story is Newtek’s earnings forecast has zeroed out any contribution from banc-serv for future income and dividends –“basically include zero to de minimis contribution from banc-serv.”

Newtek’s stock continues to get hammered. It priced at 17.99 on the day news broke of the raid on October 12. Yesterday it closed down 2.6% to 16.74 — a 7% decrease over three weeks. (Although to be fair the stock has recovered a bit since the one-day 10% drop on Friday, October 13th.)

Here is the transcript of the earnings call concerning banc-serve:

On June 24, 2016, we completed an investment in banc-serv Partners, LLC. banc-serv Partners was company we bought a little bit over four times cash flow. We have owned that business for approximately 15 months.

As we have recently reported in a press release on October — actually, I think the press release was on — no, press release on October 13th, the Company announced that its portfolio company, ADAR Partners LLC dba banc-serv Partners was served with a search warrant from the FBI on October 12th.

The FBI entered banc-serv’s offices in Westfield, Indiana.

They did a search; they took company records; before the end of the day, they left and banc-serv was open for business and continues to be open for business.

banc-serv recently was one of the primary sponsors at the NAGGL Conference, National Association of Government Guaranteed Lenders. I went to the conference, spoke to many clients of banc-serv, it is business as usual in banc-serv.

Newtek invested $5.4 million in banc-serv that is approximately 1% of its total assets, which are excess of $500 million. It is approximately 2% of NAV.

What I would like to state to people on this call is that there is currently an FBI investigation in the marketplace and it is in its early stages. And it wouldn’t be appropriate for us to make any further comments at this point in time.

The comments that we have made to-date reflect what Newtek believes is material to its financial statements and ongoing business. I will state that the current forecast that we have had for dividends and adjusted NII, basically include zero to de minimis contribution from banc-serv Partners, which we have the ability to upstream income and dividends as the board of banc-serv sees fit.

I’ll also point out once again, banc-serv is a controlled portfolio company, it is an investment, and we have made all the statements that we’re going to make with respect to banc-serv.

Source: www.SeekingAlpha.com

November 7, 2017

By Bob Coleman
Editor, SBA Hot Topic Tuesday

SBA Hot Topic — Common SBA Lender Errors

From SBA’s review of 354 lenders for FY 2017 — percentage of lenders failing to follow SBA’s SOP..

Eligibility

EPC/OC Conditions Not Met — 12%
Credit Elsewhere Test Not Documented — 10%
Prior Loss to the Government Not Documented — 10%
Size Determination Conditions Not Met — 10%
Debt Refinancing Conditions Not Met — 8%

Underwriting

Loan Authorization Deficiencies — 28%
Credit Analysis Deficiencies – Ratio Analysis — 20%
Appraisal/Business Valuations Not Obtained — 8%
Credit Analysis Deficiencies -Various — 8%
Credit Analysis Deficiencies – Collateral Analysis — 7%
Credit Analysis Deficiencies – Pro Forma Balance Sheet — 5%

Closing

IRS Tax Transcripts Not Obtained — 15%
Other Insurance Requirements Not Met –11%
Collateral Lien Deficiency — 12%
Equity Injection Verification Not Obtained — 10%
Hazard Insurance Not Obtained — 8%
Life Insurance/Assignment Not Obtained — 7%
NEHRP Requirements Not Met — 5%

Source: SBA

November 9, 2017

By Bob Coleman
Editor, Coleman Movers and Shakers

Coleman Movers & Shakers — Pat MacKrell Elected Chair of NADCO

“NADCO is lucky to have Pat MacKrell leading its board of directors. Having known Pat for a long time, I know how qualified he is to steer the 504 program and the CDC industry in the best direction over the next two years,” says Barbara A. Vohryzek, President and CEO of NADCO. “The 504 Company’s inspiring work with other economic development initiatives demonstrates Pat’s steadfast commitment to growing small businesses throughout their area of operation. We are confident his commitment to economic development and small businesses will help spur ever-more growth across the country now that he is Chairman of the national association.”

“I am grateful to the outgoing Chairwoman, Mary Mansfield, for her service and leadership over the past two years, and to the entire board for their tireless effort on behalf of CDCs across the country,” says Pat.

“I look forward to working with Barbara A. Vohryzek and the NADCO team on advancing initiatives that build our industry, support our important collaboration with SBA and advance regulatory and policy matters going forward.”

Pat brings more than 30 years of experience and leadership in commercial real estate lending to the NADCO board. Pat is a veteran of the U.S. Marine Corps and a graduate of York College, City University of New York and Albany Law School. In addition to serving on the NADCO board, he serves on The New York State Small Business Development Center Advisory Board and the New York State Economic Development Council Board.

Heidi Borneo named Virginia-based Senior Vice President, BDO for Harvest Small Business Finance

Heidi Borneo has spent ten years in the commercial lending and SBA financing industry. Her extensive experience in diverse market backgrounds and a broad understanding of small businesses allows her to arrange creative lending solutions and structures for her clients nationwide.

Heidi is a Marine Corps spouse and understands the unique challenges faced by military families. She has worked diligently to empower veteran entrepreneurship. It is this commitment to helping others succeed that drives her to dedicate her spare time to sustained volunteerism.

CDC Small Business Finance Adds Zena Gardner and Hanna Hernandez as SoCal BDOs

Zena Gardner

Zena Gardner will help initiate and expedite the SBA-504 loan process for bankers and commercial real estate brokers in Los Angeles who advise small business entrepreneurs. She will utilize her experience in customer service, education and small business ownership to enhance the loan experience for small business owners looking to grow their companies and create jobs.

“Zena is adept at building relationships and creating partnerships that will translate into new opportunities to help bankers and brokers provide capital to their small business clientele,” says Dean Aloe, senior loan officer for Team L.A. in CDC’s Pasadena-based office.

Hanna Hernandez

Hanna Hernandez will help initiate and expedite the SBA-504 loan process for bankers and commercial real estate brokers in Orange County. She will use her expertise in customer service to facilitate loan process efficiency for small business owners.

“Hannah is have a proven talent for building relationships and creating partnerships that will translate into new opportunities to help bankers and brokers provide capital to their small business clientele,” says Mark Hogan, commercial loan officer in CDC’s Irvine-based office.

In Memory of Charles Kraemer

From the North Texas Association of Government Guaranteed Lenders

“Hello friends. It is with sadness that we have to pass along information on the death of a NTAGGL member. Charles Kraemer died after a battle against cancer.

“Charles most recently was an SBA BDO for TD Bank and prior to that worked for BBVA Compass, BOK Financial and JP Morgan Chase in the Dallas-Fort Worth area. Charles had a degree in Finance from The University of Texas.”

Upcoming SBA Lending Professional Industry Events

FLAGGL, November 13-15, Orlando

Restaurant Finance & Development Conference, November 15-17, Las Vegas

10th Annual 2017 SBA Secondary Market Summit, December 4-5, Washington D.C.

Coleman’s 2017 SBA Lending Awards, December 5, Washington D.C.

The SBIC Summit: Increased Profit, Improved Regulatory Compliance, December 6, 2017 Washington, DC

USDA Rural Development Lenders Meeting, December 7, 2017 Washington, DC

Southeastern Small Business Lenders Conference, March 7-9, Asheville

Mid-America Lender’s Conference, April 15-17, Fort Worth

America West, June 20-22, Costa Mesa

November 10, 2017

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — Ex-Oklahoma Punter Brothers Plead Guilty to Bank Fraud

From tulsaworld.com

Two brothers, both punters at the University of Oklahoma who went on to find careers in finance, have now pleaded guilty to bank-related fraud and embezzlement charges.

Blake Brian Ferguson, 36, entered guilty pleas Monday to all four counts in a criminal information filed Sept. 19, by the U.S. Attorney’s office in Tulsa.

Ferguson, a senior vice president of Firstar Bank, N.A., faced three counts of bank fraud and one count of conducting an unlawful monetary transaction stemming from conduct that allegedly occurred between January 2013 and September 2015.

His brother, former Firstar Bank President Jeffrey Scott Ferguson, pleaded guilty earlier to federal felony charges.

Federal prosecutors had charged Blake Ferguson with using his position at the bank to fraudulently use funds from customer accounts and the bank to pay gambling debts.

Read the rest of the story here

November 14, 2017

By Bob Coleman
Editor, SBA Hot Topic Tuesday

SBA Hot Topic Tuesday — A Recap of all New SBA Notices, Forms and SOP

With the flurry of notice and new forms released by SBA over the past several weeks, I thought it would be prudent to summarize everything to make sure you are current with all the changes.

SBA Notices
SBA Notice 5000-17008 — Issuance of SOP 5010 5 (J)
SBA Notice 5000-17009 – Revisions to Franchise Review Process for 7(a) and 504 Loans
SBA Notice 5000-17010 — Revised IRS Form 4506

New SBA Forms

SBA Form 1919 and 1920 (May be used now, and mandatory as of January 1

• 1919 — Borrower Information Form
• 1920 — Lender’s Application for Loan Guaranty

Updated for SBA 7(a) and 504:

• 1971 — Religious Eligibility Worksheet

Community Advantage Forms

• 2449 — Community Advantage Addendum for SBA form 1919
• Also Form 2237

SBA 5010 (J)
The New SOP 5010 (J) will be effective January 1, 2018

SBA Servicing Matrix

Note: Version 14 of the Servicing Matrix released last month has been pulled from SBA’s website for corrections/revisions.

Version 13 which is attached and remains in effect until an updated version is released.

November 15, 2017

By Bob Coleman
Editor, Coleman Report

C-Suite Wednesday — SBA 7(a) 25-Year Secondary Market Quotes up to 118.000

Source: Government Loan Solutions

Announcing the 10th Annual 2017 SBA Secondary Market Summit
Join this high-level gathering of public and private stakeholders to review strategies for capitalizing on emerging opportunities and avoiding new threats and pitfalls.

November 16, 2017

By Bob Coleman
Editor, Coleman Movers and Shakers

Coleman Movers & Shakers — Bryan Hooper Named Deputy Administrator for USDA Rural Business-Cooperative Service

Assistant to the Secretary for Rural Development Anne Hazlett announces the following changes in Senior Executive Service leadership roles at USDA Rural Development:Bryan Hooper is now the Deputy Administrator for Business Programs in the Rural Business-Cooperative Service. Hooper brings 11 years of leadership in managing federal commercial loan programs to his new role, including 5 years as the head of Credit Risk Management at the Small Business Administration. Claudette Fernandez is now Assistant Administrator for Water and Environmental Programs in the Rural Utilities Service. Fernandez brings 15 years of community development experience to her new role. She has held various leadership positions within USDA Rural Development’s Rural Business-Cooperative Service since 2014. Prior to USDA, she served as senior program manager for more than 10 years at the Federal Emergency Management Agency.

The Bancorp Adds Teresa Carlson and Kelly Isley “This is an exciting time for The Bancorp,” says Jeff Nager, Executive Vice President, Head of Small Business Lending. “Kelly and Teresa are key additions who will add greater depth and expertise to our team as we take our first steps into expanding our offerings across new markets.” Kelly will serve as Vice President, SBA New Markets. In this role, she will work with the bank’s small business lenders to expand market share into a broader range of industries. Formerly the Chief Operating Officer banc-serv, Isley brings more than 17 years of financial services experience including an extensive understanding of all aspects of SBA lending to businesses nationwide. Teresa will serve as Vice President, SBA Business Development Officer, with a focus on the funeral home industry in addition to supporting general small businesses across the country. Carlson joins The Bancorp with over 24 years of experience in SBA lending. Previously, she worked as Vice President, SBA Business Development, at Mission Valley Bank.

Acclivity Financial hires Clarke Moore as Vice President in Arkansas“Clarke is a fantastic addition to Acclivity Financial,” says Danny Preston, Chief Executive Officer. “He comes from a competitive background that emphasizes teamwork and accountability. His previous production speaks for itself, and we’re pleased to expand our coverage in the South Central U.S.” “This is a perfect time to join Acclivity Financial. They’re growing and have considerable momentum,” says Clarke. “I greatly appreciate the opportunity from Danny, and I look forward to giving my all to take us to the next level.” Clarke possesses 12 years of commercial banking experience in NW Arkansas and NE Oklahoma with extensive production in SBA, USDA and C&I loans. He credits his success to strong relationships and the ability to tailor unique loan structures for each client. He graduated from the University of Arkansas with a BBA in Finance & Real Estate. He was a 4-year football letterman named to the 2002 All-SEC Freshman Team and the All-SEC Academic Honor Roll in 2002, 2004 and 2005. He is a volunteer coach for the Boys & Girls club and dedicates time to the Brandon Burlsworth Foundation based in Harrison, AR.

Upcoming SBA Lending Professional Industry Events

Restaurant Finance & Development Conference, November 15-17, Las Vegas

10th Annual 2017 SBA Secondary Market Summit, December 4-5, Washington DC

USDA Rural Development Lenders Meeting, December 7, Washington, DC

Southeastern Small Business Lenders Conference, March 7-9, Asheville

Mid-America Lender’s Conference, April 15-17, Fort Worth

America West, June 20-22, Costa Mesa

America East, August 1-3, National Harbor, MD

November 17, 2017

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — Former Mayor, Bank Sr. VP Indicted on 33 Counts of Loan Fraud

He took $6 million over the past 15 years says the District Attorney.

Ernie Currier, 64, simply stole his customers info and made bogus loans pocketing the proceeds says the indictment.

His wife posted a $10,000 bond for his release.

Reports the Enid News:

On Sept. 5, a man made a report with the Enid Police Department regarding the theft of his identity. He said on Aug. 31 he’d received a phone call from a Security National Bank representative who inquired about his farm equipment loan. The man said he’d never received such a loan, so he contacted Currier, senior vice president of commercial lending at Security National Bank in Enid.

“The man described Currier as a close personal friend and fellow member of the First Baptist Church in Enid,” Jacobi said. “Currier initially tried reassuring the citizen that the bank had made an error and that his identity had not been stolen. Ultimately, through a series of later phone calls, Currier confessed that he’d used the citizen’s personal information to open several fraudulent loans at the bank. Currier also admitted that other individuals were victimized.” According to an affidavit filed in the case, when the man called Currier about the loans Currier told him he had taken the loans out in his name and that Currier “fully expected to be prosecuted.” Currier also told the man there were other names he used to create fraudulent loans. The man recorded the conversation and gave police a copy.

That man had three loans, in the amounts of $125,000, $100,000 and $145,000, taken out in his name, according to the affidavit. Records indicate Currier generated and signed the documents used to open loans in the man’s name.

Ernie Currier is a former mayor of Enid, Oklahoma. In 2016 he was named the Greater Enid Chamber of Commerce Citizen of the Year.

November 21, 2017

By Bob Coleman
Editor, SBA Hot Topic Tuesday

SBA Hot Topic Tuesday — Common Errors SBA Lenders Committed Last Fiscal Year

Following is a list of lender errors uncovered in SBA’s PARRiS Reviews last fiscal year.

Loan Underwriting

• Discrepancy between Loan Authorization and Credit Memo
• Failure to Include Industry Analysis

Loan Closing

• Stand-Stand by Note not obtained
• Lease Term Conditions not met
• Assignment of Lease not located
• Construction Performance Bond not obtained
• Secondary Market Sales before full disbursement
• Child Support Verification not obtained
• Landlord Waiver not obtained
• Inaccurate certificates of insurance

Loan Servicing

• On Going– Flood and/or Hazard Insurance
• Annual Financial Statements Not Obtained and Analyzed
• On Going– Property Taxes Policy/Procedures
• Site Visit Not Conducted
• Liquidation Practices
• Recovery Remittance Timely Submission/Wrap Up Report

Liquidation

• Recovery Remittance
• Timely Submission of Wrap Up Report

Source: SBA

November 22, 2017

By Linda McMahon
SBA Administrator

Main Street Wednesday — “Shop Small” in YOUR community this Small Business Saturday

Your friends and relatives are special. This holiday season, the gifts you give them should be special, too!

Big box stores are making a play for Black Friday and online retailers are selling Cyber Monday. Tucked in between, Small Business Saturday celebrates the local stores that make YOUR community unique. They are the mom-and-pop, brick-and-mortar stores that are locally owned and locally staffed. They are the fashion boutiques, gift shops, stationers, jewelers and others that offer an authentic shopping experience and one-of-a-kind products you may not be able to get anywhere else. They aren’t promoting themselves with big advertising budgets or e-mail blasts like their national competitors, but they are just as worthy of shoppers’ attention – and their gift-giving dollars.

Last year, an estimated 112 million consumers reported shopping at small businesses on Small Business Saturday – more than ever before, and a 13 percent increase from 2015 according to a survey released by American Express and the National Federation of Independent Businesses. Consumers spent an estimated $15.4 billion at independent retailers and restaurants.

This year, Small Business Saturday is celebrated nationwide on November 25, and I encourage you to participate in your own community.

Small businesses truly are the engines of our economy – and our communities. Over half of our workforce either owns or works for a small business, and small businesses create two out of every three net new jobs in the private sector. Across our great country, neighborhoods and families depend on the success of small business. By shopping at small businesses, your gift-giving dollars will stay in your community and support jobs for your neighbors – making the holidays a bit brighter for more people than just those on your shopping list.

This Saturday, “Shop Small” and share your splurges on social media with #ShopSmall. I hope you’ll be inspired to support your community’s small businesses not just on November 25 but all season long. You are supporting your neighbors – and the gifts they provide your communities all year round.

Linda McMahon serves as the 25th Administrator of the U.S. Small Business Administration. As a member of President Trump’s cabinet, she advocates on behalf of the almost 29 million small businesses in America, which employ nearly half of all American workers and account for 56.8 million jobs.

November 27, 2017

Main Street Monday — 10 things the C-Suite Must Know About SBA’s New Procedures — ICBA Webinar 11/29

November 28, 2017

By Bob Coleman
Editor, Coleman Report

SBA Hot Topic Tuesday — SBA 7(a) 25-Year Secondary Market Quotes At Historic Near-Record Highs

Source: Government Loan Solutions

Announcing the 10th Annual 2017 SBA Secondary Market Summit
Join this high-level gathering of public and private stakeholders to review strategies for capitalizing on emerging opportunities and avoiding new threats and pitfalls.

November 29, 2017

C-Suite Wednesday — REMINDER: SBA 7(a) Liquidation Wrap-Up Reports Deadline is December 1

The two year window to submit wrap-up reports for SBA 7(a) loans liquidated prior to December 1, 2015 is now here.

Double check your PARRiS score in the SBA One dashboard for a list of your loans that fall in this category.

If you have a loan that is still in liquidation and can’t be wrapped up by Friday, you must ask SBA for an extension or you risk receiving an invoice from the agency for the full amount of the guaranty.

From SBA SOP 5057 2, page 158

Consequences of Failure to Submit a Timely Wrap-up Report

If a Lender fails to submit a Wrap-up Report within the timeframe specified in Subparagraph 1. above, in addition to referring the Lender to the SBA Office of Credit Risk Management for possible enforcement action, SBA has the right to require the Lender to purchase the loan back from SBA, charge-off the loan balance and, if appropriate, to refer the loan to Treasury after assignment of the loan documents.

From notice 5000-1378

Prudent Liquidation For loans in which the SBA has honored the guaranty (purchased), but were not fully liquidated prior to December 1, 2015, Lenders also must comply with SBA’s new deadline for Prudent Liquidation — Lenders must complete prudent liquidation activities and submit an acceptable Wrap-up Report in an electronic format to the appropriate SBA Loan Center no later than 24 months after purchase by SBA, or 24 months after the effective date of SOP 50 57 2, (December 1, 2017).

For loans with guaranties that were purchased after December 1, 2015, the “later” 24 month period is “24 months after purchase.”

For loans with guaranties that were purchased prior to December 1, 2015, the “later” 24 month period is “24 months after the effective date” of the SOP. For loans in the latter category, this allows Lenders 24-months from the effective date of the SOP to complete Prudent Liquidation of those loans and submit a Wrap-Up Report.

EXTENSION

An extension of the 24 month deadline may be approved in writing by the SBA prior to the expiration of the applicable 24 month period. (SOP 50 57 2, Chapter 26, Paragraph B, and Chapter 23, Paragraphs E and F. Please note that the SOP actually refers to Paragraphs E and J, however, the correct reference is to Paragraphs E and F.)

Editor Note: I understand there are separate wrap-up extension forms for Herndon, Little Rock and Fresno. As soon as I track them down, I’ll amend this post and link them for your use.

Related Links

SBA Notice 5000-1378, “Clarification of Wrap-up Report Deadling and Prudent Liquidation,” 4/1/16

SBA Issues New SOP 5057 2 for SBA 7(a) Loan Servicing and Liquidation, 11/25/15

November 29, 2017

CPR Report: SBA 7(a) Prepays “Skyrocket” Due to Principal Repayment Changes

By Bob Judge
Editor, CPR Report

Download the CPR Report, November 2017

Quite a month it has been. A change to how the SBA and Colson will pass-through principal payments on pools originated from FY 2005 to FY 2017 has had the effect of significantly speeding up prepayment speeds during its first two months of implementation (Please refer to the Glossary for more information about this change).

For this reason, I have combined the October and November reports to discuss this change and its impact so far.

For a more detailed analysis of the change and what it means, please see the companion article below.

Through this past September, we had been running at an average of CPR 8.43% for the first nine months of 2017. This represented an increase from 2016, which showed an average CPR of 7.85% for the entire year.

So, it is safe to say that 7a loan prepayment speeds have been slowly rising, and were currently in the mid-8s as of the end of FY 2017 (The SBA fiscal year ends of 9/30). These measurements were based on the “old” way of distributing prepaid principal, which goes back to the beginning of FY 2005.

Basically, the SBA went from distributing loan proceeds and the loan’s own excess principal within FY 2005—FY 20017 pools to distributing loan proceeds and pool excess principal on a prorata basis across the remaining loans inside those same pools.

On how excess principal grows inside a pool, please refer to the article “The SBA Master Reserve Fund: Is SBA Pooling in Trouble?” from the September, 2015 CPR Report.

While it would seem that this change would have only modest consequences to the return of excess principal, it in fact has had a significant impact in October and November.

For the remainder of this article, we will go over the actual results, provide some insight into how much excess was paid out and calculate a “corrected” prepayment speed that strips out said excess. The companion article in this report will go into further detail on what the future holds based on what we currently know.

Resuming the discussion, the reality is that prepayment speeds in the FY2005 to FY 2017 pools have moved up considerably, pushing overall speeds much higher, since this group of pools currently represents 98.5% of all outstanding pool balances.

For those who are attempting to calculate a base-line prepay speed for 7a pools, we offer our version of a corrected speed that allows for an “apple-to-apples” comparison to past historical numbers. I leave it to the reader to judge the value of the results.

For October, actual speeds came in at 14.55%, an 82% increase over September’s reading of 7.99%. November was a mirror of October, coming in at 14.54%.

As you would imagine, most maturity buckets witnessed steep increases, except, curiously, the 8-10 sector fell 19% (CPR 15.20% to CPR 12.28%) in October. It also declined by another 12% in November, coming in at CPR 10.75%.

Enough about current prepay speeds. Suffice to say they will remain elevated for an extended period of time, with the “Why” to be answered in the companion piece. Instead, let’s turn to our model for stripping out the excess principal and calculate a pre-change CPR for each maturity bucket, as well as the overall.

Fortunately for this analysis, there is a file on the Colson website that shows all secondary market defaults and voluntary prepayments pre-MRF, of which pooled loans are a significant subset. As you might imagine, these two datasets are highly correlated, allowing us to predict what the prepayments might look like using the same rules that were in place prior to October.

A simple regression of prepayment amounts between the paidoff loan file and the factor report over the past two years produces the results for the above chart, “POOL PREPAY PREDICTION RESULTS”.

As you can see, the predictive power pre-change was very high. In fact, it produced a r-squared of 95.3% for the period of 1/2015 through 9/2017 (for more details, see the table on the next page).

By this measurement, $183 million and $174 million of excess principal was distributed from the MRF in the October and November factor reports, respectively. Subtracting these amounts lowered the “corrected” overall CPR to 8.68% and 8.96% for both months.

You will notice in the CPR charts further into the report that I have added a corrected CPR chart, in addition to the actual prepayment speeds you are used to seeing. Again, actual prepayment speeds for both months were in the 14s, but for those who need corrected numbers for modeling purposes, I offer the corrected speeds.

The next step was to distribute the excess principal over the six maturity buckets that we track. In order to get to the appropriate proportions, I modeled the excess distribution at the pool level, based on the amount of excess principal that is imbedded in each pool. This was possible by running balances on all 64,898 loans that were still active as of October 31st and November 13th which was the date of the November Factor Report. We then totaled the loan balances by pool and compared it to the actual pool balances for both October and November factor reports.

At this stage, this is not an exact comparison, due to the delay imbedded in the factor reports versus up-to-date loan balances available on the Colson website. The October loan balances will match up with the December factor report, which is an important distinction when we discuss modeling the future in the companion piece. Suffice to say that our modeling will get better as we continue to track loan balances versus pool balances over time.

The results of this distribution of the paidout excess by maturity bucket is also in the corrected CPR table, so we can get a better handle on how each bucket is currently prepaying. We did not distribute the excess by age, as seen in those tables, leaving them with the actual numbers for this report.

As we get better data and sharpen our pencils, we should be able to provide this type of distribution in future issues of the report. Fortunately, we do have results from previous months, that will allow those individuals looking to make their judgement as to how the excess payments have impacted the pool age tables.

Announcing the 10th Annual 2017 SBA Secondary Market Summit
Join this high-level gathering of public and private stakeholders to review strategies for capitalizing on emerging opportunities and avoiding new threats and pitfalls.

November 30, 2017

Coleman Movers & Shakers — Tim Sadler Named EVP of First National Bank of Coweta

Download: SBA 2-Year Liquidation Rule Extension Request

Tim Sadler Named EVP of First National Bank of Coweta

“Tim embodies all of the attributes of a true community banker. He believes in the community and knows the role a hometown bank plays in helping the community thrive,” says Mike Lyles, President of the Oklahoma-based bank. “I don’t know anybody who has a broader range of lending experience or more expertise in working with the Small Business Administration helping commercial customers make the most of that agency’s myriad of programs. But at the same time, he loves living in and being part of a small town. I believe he is a perfect fit for this community today and tomorrow.”

A native of Sebring, Fla., Sadler received a degree from Baptist Bible College in Springfield, Mo., and graduated from the Graduate School of Banking at the University of Wisconsin-Madison. He comes to Coweta from Kansas where he served as Senior Lender for the First National Bank of Liberal, Kan. Additionally, he was involved in leadership programs and various local civic organizations such as the Kiwanis Club, Chamber of Commerce, and United Way.

Live Oak Bank Adds Jackie Robinson-Burnette as Industry Expert for the Government Contracting Segment

“With over a decade of experience in government contracting, Jackie has a long history of helping leaders in the government contract space find solutions to grow and expand their businesses,” says Patrick Kelley, general manager of government contracting at Live Oak Bank. “Her perspective and expertise in this industry will be a valuable asset to our team and our customers.”

In this role, Robinson-Burnette will work with government contractors to help them start or grow their businesses through financing. By applying her extensive experience and expertise in federal small business contracting and business development, Robinson-Burnette will work alongside the lending team to best serve government contractors looking to start or grow their businesses with financing.

Robinson-Burnette joins Live Oak Bank after holding the position as SES Deputy Associate Administrator for the Office of Government Contracting & Business Development, Small Business Administration where she led a team of five senior executives and more than 190 small business professionals across the nation. Robinson-Burnette has spent her career in federal small business contracting, including overseeing the government’s $90 billion-plus prime contract awards to small businesses each fiscal year.

Pam Scott Named Senior Vice President of Lender Relations of Radar Lender Services

Ray Chiamulera, President and Founder of Radar says, “The addition of Pam to our team could not come at a better time. We’ve seen exponential growth in 2017 and her years of experience will only make us stronger.”

Pam brings to the team 29+ years of experience with SBA Lending and Operations Management. Pam’s prior experience with such lenders as CIT Small Business Lending Corp. and Evolve Bank and in positions like VP of SBA Operations and EVP SBA Program Manager strengthens Radar’s foundation.

Benjamin Alexander Joins NYBDC as Commercial Loan Officer

“I’m very excited to be joining a mission-based lending group and look forward to helping entrepreneurs across New York State. I truly believe one of the best ways to facilitate positive change in a community is through the growth of small businesses and job creation. I’m looking forward to playing a small role in NYBDC’s mission to help New York entrepreneurs achieve their version of the American dream,” say Benjamin.

Upcoming SBA Lending Professional Industry Events

10th Annual 2017 SBA Secondary Market Summit, December 4-5, Washington DC 

USDA Rural Development Lenders Meeting, December 7, Washington, DC

Southeastern Small Business Lenders Conference, March 7-9, Asheville

Mid-America Lender’s Conference, April 15-17, Fort Worth

America West, June 20-22, Costa Mesa

America East, August 1-3, National Harbor, MD

December 1, 2017

Fraud Friday — Oregon Community Bank CEO and CFO Guilty of 13 Counts of Bank Fraud

For covering up bad loans by falsifying bank reports to their Board of Directors and regulators. The bank failed in 2012.

Dan Heine, former CEO of Bank of Oswego and Diana Yates were found guilty this week by a jury.

“As the jury found today, Dan Heine and Diana Yates violated the law by deceiving the Bank of Oswego’s board of directors, customers, and federal regulators in an attempt to conceal the organization’s true financial condition,” says Billy J. Williams, United States Attorney for the District of Oregon. “Together with our partners at the FBI and the Federal Deposit Insurance Corporation, we remain steadfast in our commitment to protecting the integrity of our financial system from fraudulent and corrupt banking practices.”

“Banks and the people who run them should serve as the cornerstone of the American economy,” says Renn Cannon, Special Agent in Charge of the FBI in Oregon. “When bankers conspire, lie, and hide wrongdoing to benefit themselves, they undercut the integrity of the financial system on which we all depend.”

Heine, 70, once named Lake Oswego’s citizen of the year, could spend much of the rest of his life in prison. Each count is punishable by 30 years imprisonment.

Sentencing for both defendants is scheduled for March 5, 2018 in Portland.

See previous Coleman Report reporting here.

Community Bank CEO & CFO Arrested for Hiding Bad Loans from the FDIC — 6/29/15
http://colemanreport.com/mug-shot-monday-community-bank-ceo-cfo-arrested-for-hiding-bad-loans-from-fdic/

Bank of Owsego Indictments — 7/6/15
http://colemanreport.com/mug-shot-monday-bank-of-oswego-indictments/

Geoff Walsh Guilty — 7/24/15
http://colemanreport.com/fraud-friday-bank-of-oswegos-first-guilty-plea/

December 12, 2017

By Bob Coleman
Editor, SBA Hot Topic Tuesday

SBA Hot Topic Tuesday — Inspector General Claws Back $5 Million Paid to 6 Lenders in 2015

The $5 million is to be billed to six lenders that previously received payment from SBA honoring a 7(a) guaranty in FY 2015.

One loan is the gift that keeps on giving. Herndon denied the guaranty. SBA’s headquarters overturned the denial based on additional documentation received from the lender. Now, two years later OIG says Herndon was right, headquarters was wrong and the guaranty should have been denied.

SBA’s OIG estimates the total amount of lender “improper payments” was $32 million, or 3.6% of the $880 million in guaranties paid to lenders in FY 2015.

I’m not going to list the affected lenders. If you are curious you can look them up in yesterday’s attached audit report.

What is important from the audit are the errors OIG believes lenders made causing the guaranty repair or denial.

Writes the OIG:

Eligibility Deficiency Example

We noted one loan where the lender’s calculation of the cash flow improvement contained erroneous information. When the calculation was performed with the appropriate figures, the cash flow improvement fell significantly below the SBA threshold for eligibility. SBA requirements state that when refinancing long-term debt, the business must receive a permanent substantial benefit.

Repayment Ability Example

For one loan, the lender determined that repayment ability was sufficient even though the borrower had unsupported and unrealistic revenue projections and declining revenue prior to the change of ownership. The projections showed a 62 percent increase in revenue in the first year, after a decrease of 16 percent in the prior year. The loan file did not contain sufficient evidence to support how it would be achieved. SBA requirements state that borrower projections must be based on reasonable assumptions and no loan can be guaranteed by SBA unless there is a reasonable assurance of repayment in a timely manner.

Closing Deficiency Example

We identified one loan where the lender incorrectly indicated that loan proceeds were to be used to purchase land and improvements. Instead, the loan proceeds were used to make a payment to the estate of a deceased partner to facilitate a change of ownership. The lender did not comply with SOP requirements for a change of ownership transaction including the completion of a business valuation. SBA policies required the lender to obtain, or perform a business valuation.

Collateral/Liquidation Deficiency Example

We identified one loan where the lender failed to properly take a lien on a truck that was being refinanced with SBA loan proceeds. The loan being refinanced was solely secured by the truck. SBA requirements state that when SBA refinances secured debts, SBA expects to have at least the same security for the new debt, as long as the original loan was not over collateralized.

Other Deficiency Example

We also found that SBA identified one loan in which Care and Preservation of Collateral (CPC) expenses were deducted from recoveries at the time of liquidation, and the lender was then reimbursed for the same expenses at the time of the guaranty purchase. This resulted in a duplicative reimbursement of CPC expenses.

SBA Inspector General Audit Report, “Accuracy of the FY 2015 7(a) Loan Guaranty Purchase Improper Payments Rate,” December 11, 2017

December 14, 2017

By Bob Coleman
Editor, Coleman Movers and Shakers

Coleman Movers & Shakers — Live Oak Bank Announces 16th Lending Vertical — Automotive Care Industry.

“The automotive industry is one of the largest in the U.S., yet owners of auto repair businesses may struggle to find financing options to help them grow or open their shops,” says Jason Lumpkin, general manager of emerging markets at Live Oak Bank. “Live Oak’s mission is to meet the needs of underserved markets and give small business owners access to financing so they can achieve their business goals.”

The team will be led by general manager Lew Woodbury, who brings 15 years of experience in the banking and financial services industry. “Live Oak is excited to offer solutions to help automotive repair and maintenance business owners reach their full potential,” says Lew. “I look forward to leveraging my knowledge and experience in franchise lending to the automotive care industry.”
The vertical marks Live Oak’s 16th industry specific lending division and will concentrate on businesses that provide quick lube services, tire centers, service and maintenance shops, collision shops, paint and body shops, and select auto part franchises.

Live Oak Bank assembled a team of expert lenders to provide flexible lending solutions to current and prospective business owners within a variety of deal structures. The team has extensive lending experience and knows how to value automotive care business assets, including capital needed to establish a strong business.

Seacoast Commerce Bank Appoints Don Mercer EVP and SBA National Sales Manager

“Don is an outstanding addition to our SBA Team and his newly created role is a vital component to our planned growth. His main focus over the short-term is to expand our sales force by 50%, adding 10+ highly productive SBA BDO’s to our existing team.” says David H. Bartram, Senior Executive Vice President, Chief Operating Officer, and SBA Division Manager.

“I am excited for this opportunity and have been very impressed with Seacoast’s business model. They have a huge market advantage with the fastest and most consistent turn times in our industry. Additionally, they have a common sense approach to credit and look for ways to say yes.” states Don Mercer.

Don has over 28 years of banking experience, the last 10 years as SBA National Sales Manager for Bank of the West. His BDO’s will be focused on helping business owners facilitate the acquisition, development, and refinance of commercial real estate properties.

Gulf Coast Bank Acquires American Business Lending

Gulf Coast Bank has acquired American Business Lending, a Dallas-based non-bank SBA lender.

Gulf Coast Bank retained ABL’s staff and management and merged its operations with Gulf Coast SBA Lending business in its Dallas headquarters.

American Business Lending was founded in Dallas in 2006 as a non-bank SBA 7(a) lender. In the next 11 years, it had provided loans to numerous small businesses across the country. Gulf Coast SBA Lending was formed earlier this year when Gulf Coast Bank acquired Dallas-based CapitalSpring SBLC and consolidated all its SBA lending activity in the Dallas headquarters.

The combined entities now service nearly $300 million of SBA 7(a) and 504 loans.

Gulf Coast Bank has 19 branch locations across Louisiana and more than 30 mortgage lenders located throughout Louisiana and Florida.

Northeast Bank Announces Appointment of Fred Schwartz as Senior Vice President

Northeast Bank President and Chief Executive Officer Richard Wayne says, “Fred’s affiliation with AAHOA and his extensive experience working with national hotel brands and their franchisees will support the expansion of our hotel lending efforts. We welcome him to our team and look forward to his contributions to the Company.”

Fred brings more than 35 years of experience in the hospitality industry to the Company. He joins having most recently served as Senior Vice President of Midscale Development at the Carlson Rezidor Hotel Group. In his role there, Mr. Schwartz led the Country Inns & Suites Development Team, and was responsible for increasing franchise growth across the Americas by over 200%. Prior to his time with Carlson, Mr. Schwartz served as President of the Asian American Hotel Owners Association for nearly 18 years. During his tenure at AAHOA, he helped the association grow its membership from 3,000 to over 14,000, becoming the hospitality industry’s largest group of hotel owners, as well as one of the most influential voices for hotel franchisees across the country. Earlier in his career, Mr. Schwartz held senior management positions with Hyatt Hotels, Warwick International Hotels & Resorts, and Crowne Plaza Hotels & Resorts

Upcoming SBA Lending Professional Industry Events

Southeastern Small Business Lenders Conference, March 7-9, Asheville

Mid-America Lender’s Conference, April 15-17, Fort Worth

NAGGL SBA Lending Technical Conference, May 1-3, Chicago

NADCO Spring Summit, May 6-9, Arlington

America West, June 20-22, Costa Mesa

America East, August 1-3, National Harbor, MD

11th Annual Secondary Market Summit, December 4, Washington D.C.