441-720-0315 Commercial Loan Policies and Procedures Prior to engaging in commercial lending, a credit union board must approve policies, and management must prepare procedures, for the types of loans the credit union is originating (or plans to originate). At a minimum, the policies and procedures should address the following: (1) Types of loans to be made; (2) Identification of trade area to be served; (3) The maximum amount of net worth that will be invested in commercial loans; (4) The maximum amount of net worth that will be invested in a given category or type of commercial loan; (5) The maximum amount of net worth that will be loaned to any one member (including those loans that the member guarantees) and group of associated borrowers, subject to OAR 441-720-0330; (6) Qualifications and experience requirements for personnel involved in underwriting, processing, approving, administering, and collecting commercial loans; (7) Initial and ongoing analysis and documentation of the ability of the borrower to repay the loan; (8) Periodic receipt and analysis of the financial statements and other documents, including tax returns, of the borrower(s) and guarantor(s); (9) Considerations governing the quality and complexity of the financial statements; (10) Documentation sufficient to support each request for an extension of credit, or an increase in an existing loan or line of credit, except where the credit union finds that the required documentation is generally not available for a particular type of loan and states the reasons for those findings in the credit union’s written policies. The documentation is expected to include the following: (a) Understanding and history of the borrower(s) and guarantor(s) and the business operation and ownership; (b) Balance sheet, income statement, and tax returns; (c) Analysis of financial statements, cash flow, and leverage position; debt service coverage ratio guidelines including, but not limited to, the lessees of non-owner occupied property; and the global financial ability to repay; (d) Comparison with industry average or similar analysis; (e) Explanation of the related debt with the credit union; (f) A detailed explanation of the complexity of the loan purpose, repayment, collateral, loan structure, conditions, capacity, relationship, strengths and weaknesses, and associated risks; and (g) Borrower documentation such as loan agreement and covenants, note, security agreement, borrowing authority, and commitment letter. (11) Collateral requirements must include all of the following: (a) Steps to be taken to secure various types of collateral; (b) Determination of ownership; (c) Determination of value, source, and marketability, including a real estate appraisal policy; (d) Maximum loan-to-value ratio guidelines; (e) Frequency of reevaluation of the value and marketability of the collateral; and (f) Insurance, if applicable. (12) General underwriting guidelines such as cash-out purpose and maximum financing; expectations for due diligence of loan brokers and their loans and borrowers; and expectations for stress-testing. (13) General credit risk management and administration procedures which include: (a) Loan approval authorities and limits; (b) Credit risk rating system; (c) Servicing and follow-up; (d) Collection process; (e) Frequency and type of loan monitoring, which may include financial analysis, documented collateral inspection, loan agreement and covenant compliance, and credit risk rating system review; (f) Review of concentrations and limits, loan losses, delinquencies, and underwriting standards and practices; and (g) Internal controls and audit processes. (14) Interest rates and maturities of loan type; pricing and risk philosophy. (15) Procedures for adequate safeguards to minimize potential environmental liability. (16) Identification of individuals prohibited from receiving commercial loans under OAR 441-720-0370. (17) Approval of policy exceptions and reporting process, noting distinctions between the process for routine exceptions and significant exceptions and, to control risk, how to avoid frequent exceptions. (18) If, however, a credit union makes a commercial loan through a program in which a federal or state agency (or its political subdivision) insures repayment, guarantees repayment, or provides an advance commitment to purchase the loan in full, and that program has requirements that are less restrictive than those required by this rule, then the credit union may follow the loan requirements of the relevant guaranteed loan program. Statutory/Other Authority: ORS 723.102 Statutes/Other Implemented: ORS 723.152, 723.156 & 723.512 History: FSR 1-2022, amend filed 05/18/2022, effective 06/01/2022 FCS 2-2002, f. & cert. ef. 8-27-02