TWENTY TWENTY ANALYTICS | Case Studies

Need to Merge

The Situation: A small Midwest credit union was told by the NCUA that they needed to find a larger credit union to merge into or risk being taken into conservatorship. Management did not have the internal resources to complete a robust review of their loan portfolio; however they felt they needed to better understand the overall risk in their portfolio and that this in turn would make them more attractive to a potential acquirer.

Our Solution: Twenty Twenty completed a review of the credit unions entire loan portfolio, including a risk grading of every loan. Our review confirmed management's belief that there were concerns related to certain loans; however it also identified that the majority of the loans were in fact low risk. The analysis allowed the credit union and their regulators to focus in on the real areas of concern.

The Result: Because the credit union now understood with more clarity the specific areas of concern versus a blanket feeling of problems; they opened up many more options for themselves in finding the best merger partner for their members. In addition, with a better understand of the risk in their portfolio, the NCUA allowed the credit union to take more time to develop their merger strategy.


Regulatory Pressure

The Situation: A large credit union in Florida with a history of minimal charge-offs and conservative underwriting criteria was being challenged by the NCUA to significantly increase their allowance for loan and lease losses. Their historical GAAP analysis did not support the significant increase; however management did not have additional information to contradict the NCUA findings.

Our Solution: Twenty Twenty performed a review of the collateral exposure for all secured loans in the portfolio and risk graded all loans based on criteria identified as critical by the credit union's NCUA reviewer. Using the results of our analysis, we developed an estimate of the credit unions allowance for loan and lease losses that could be compared to their GAAP model.

The Result: Our analysis was provided to the NCUA reviewers who met with Twenty Twenty personnel that performed the review. The examiners asked many questions and had direct access to our models to test the work performed. In the exit conference with the credit unions Supervisory Committee and Board of Directors, the examiners accepted the allowance calculation as originally presented by management and commented that the loan analysis was one of the most robust that they had ever seen.


Open Lines of Credit

The Situation: A credit union in California was concerned that certain borrowers with open lines of credit represented a significant risk. Management attempted to determine which borrowers represented the highest risk and how much, if any, to reduce the open lines of credit to minimize their risk without turning away good members.

Our Solution: Twenty Twenty completed a collateral analysis and risk graded all open credit lines. We further segregated the results of our analysis by geographic area so the credit union could assess whether the collateral was in an area subject to significant changes in market values.

The Result: The credit union identified several high risk borrowers and moved to reduce or eliminate the available lines of credit for these individuals. However, the credit union also identified many lower risk borrowers and was not only able to leave the open lines of credit in place, but also developed a marketing strategy to present other loan opportunities to these well-qualified members.


Recently Completed Merger

The Situation: A credit union in the Southeast recently completed a merger of a smaller credit union that was facilitated by the NCUA. The merged credit union used loan and core systems that were different than their own. Because of the different systems and a host of other issues, the credit union was having a difficult time assessing the risk in the acquired portfolio.

Our Solution: Utilizing our internal systems, Twenty Twenty was able to convert the data from the acquired portfolio in a manner that allowed us to complete a risk analysis on the new portfolio as well as to compare the risks in the new portfolio to the credit union's existing portfolio.

The Result: Management of the credit union has a better understanding of the risks in the acquired portfolio and used this understanding to provide better service to their newly acquired members.


Third Party Insurance

The Situation: A credit union in the Northeast had historically purchased third party insurance to hedge default risks on certain portions of their loan portfolio. Given recent market conditions, premiums related to this insurance were increasing significantly. Management needed a way to show the insurer that the risk related to their portfolio had not increased at the same rate as most financial institutions.

Our Solution: Twenty Twenty performed a risk analysis for all loans in the portfolio that had been insured. The analysis was shared with the insurance company.

The Result: Management was able to negotiate a more favorable premium rate and reduce the overall expense related to their insurance. In addition, the credit union identified certain loans that were being insured that were considered low risk that management believed could be removed from the pool of loans being insured thereby removing the premium costs altogether for these loans.