note: This is part two of a two part case study profile by Carol Anne Burger on the importance of MBL for some credit unions.
The recently released Treasury Study on member business lending in credit unions is a hot topic of discussion for many credit unions. Last year’s imposition of a 12.5% cap on the ratio of MBL/assets is an important issue which many credit unions contend will cause both immediate and long-term discomfort. Some feel that the Treasury’s findings show that the MBL cap is unjustified given the small overall role that credit unions play in providing business loans. Therefore, CreditUnions.com decided to talk to a few credit unions whose current MBL portfolio accounts for more than 12.5% of their total assets. Hear what they had to say!
Part 2 of 2, click here to read Part 1 from last weeks edition
Chetco FCU, Harbor, Oregon, has an MBL portfolio of
$15,549,441, with assets of $108 million, making for a 14.44% share. There are no agricultural loans, said President Stanley Baron.
We have a very aggressive lending policy,said Baron. It’s a paradigm for us. This area is ripe for someone like us. Here, business is held hostage by local banks. There is trepidation, he added, on banks part because of Chetco’s business lending.
Chetco can lend up to 250% of its capital (or net worth) and engages in a wide variety of loans. We loaned $1.8 million to a local nursing home. There are several doctors with practices; an eye surgeon and a few general practitioners. We have a few car dealerships, some construction loans. So many people here need our help, Baron said.
Baron maintains that lending is a risk-based frontier, and in commercial lending, it’s astronomical. CUs do best when they hire experts (if they lack expertise in commercial lending) to ensure sound policies and procedures.
Baron is a passionate credit unionist, but is convinced that taxation is inevitable, owing to increasing powers being granted by efforts of mega-size CUs. They want to compete with the big, money-center banks. Banks won’t give up on the taxation issue, and commercial lending may serve to give them an edge. I’ll defend against it to my last breath, but banks got rid of the S&Ls, and they’ll come for us. If we allow Congress to impose taxation, even on credit unions with assets over $5 billion, it’s over, the foot would be in the door.
Still, making commercial loans is entirely appropriate, feels Baron. Not for the sake of just making them, but because our members want and need them. In a predominantly resort-retirement area, Chetco would be in trouble without its commercial portfolio, and local entrepreneurs need a place to go where they don’t get raped. Credit unions are unique, and it’s that uniqueness that makes us special. If we find our niche and stay in it, we’ll be phenomenally successful.
An example of a niche success story is Montauk CU, in Woodside, (Queens) New York, one of the infamous taxi medallion loan credit unions, laughed CEO Louis Jimenez. Without having been grandfathered against the cap, we would have been a bank by now, he said. We would have been forced into it by the inability to serve our members. We prefer being a credit union.
Jimenez, is glad to see (and help) many immigrants pursue the American Dream. With individual taxi medallions costing $200,000, that could be out of reach for many.
Jimenez sees the work as a contribution to the fabric of society. My Dad was an immigrant, and he suffered many of the indignities many of my members have suffered. They are grateful to have a credit union; a place to go for help, and I’m glad to be here for them.
Montauk’s $36.3 million portfolio (with assets of nearly $42.2 million) consists of approximately 250 medallion loans, some commercial real estate and mortgage loans.
Jimenez would fight any attempt to restrict CUs from making MBLs, even though his CU would not be affected. It’s ludicrous. Why should we compromise? If members require it, we need to be there for them. This cap business started because bankers got to enough Republicans on the banking committees. But we had Senator Al and Senator Gramm, and they understood.
We have 17% capital, and most credit unions are well-capitalized, so why the restriction?