Robert Familant, president/CEO of Progressive Credit Union, New York explained that selling parts of loans -loan participations- to other credit unions was an idea conceived through necessity. "As a state charter, we had a lending limit of $1 million per individual, which, based on our capital, is significantly less than if we were a federal charter. Because our niche is loans to purchase New York City Taxi Medallions, we couldn't serve our members who wanted more than one, so we had an idea to sell parts of loans to other credit unions."
Seven years ago doing that wasn't as easy as it is today, he noted. "The first guy with the courage to get involved was Ed Callahan of Patelco CU, and to this day, Patelco has the largest participation in the program," Familant said.
Buyers of the loans get increased yield over other investments (as much as 200 basis points better than Treasuries) and have marginal risk. "No participant has ever lost a nickel with us," Familant said, due to thorough due diligence.
Progressive now has a gross loan portfolio of $300 million, of which $60 million is participation loans, capital of 45%, assets of $240 million and 5,000 members. But accounting for the loans as the program grew was a time consuming thing, Familant said, until WESCO developed an online program that automatically does calculations for accrued interest payments and generates reports for all participants in a loan.
"Progressive passes the principal and interest payments to buyers of loans," said Jim Vilker, VP of business development for WESCO (www.cubase.org) the Kentwood, Michigan CUSO, "and that's what our software does. It allows a settlement to occur that's automatic. Bob sees a report that lists amounts owed to all buyers of any loan. What used to take five days now takes ten minutes."
"We see this as taking it a step further, to assist credit unions in building their ROA (return on assets) because ewe aren't just a data processing vendor, we are a CUSO," said Vilker.
"It's made our lives easier," said Familant, and it wasn't easy because we are an unusual credit union that needed a specialized solution. We needed something that didn't fit the box, and they delivered."
Progressive's participation loans are available to all CUs in the WESCO network and beyond. "We are always looking for more participants," said Familant.