What is the importance of Member Business Loans?

Part 1 of 2, note: This is part one of a two part case study profile by Carol Anne Burger on the importance of MBL for certain credit unions. Check back next week for Part 2 with additional credit union case studies

 
 

Part 1 of 2, note: This is part one of a two part case study profile by Carol Anne Burger on the importance of MBL for certain credit unions. Check back next week for Part 2 with additional credit union case studies

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. Recognizing that each credit union's situation is unique, 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!

Grant Baker FCU (as of 6/00)
Total Assets $33.6 million
Total Loans $24.3 million
Total MBL $6.59 million

Grant Baker Federal Credit Union
Grant Baker Federal Credit Union's community charter covers two counties in eastern Oregon from which the chain banks have withdrawn, said President/CEO Ralph Goodwin. The local bank has no loan officer on staff, so residents seeking a commercial loan would have to drive some 150 miles to see one.

So Grant Baker's member business loan portfolio of $6,589,748 is very important to the town of John Day, Oregon, and environs, Goodwin said.
''We didn't decide one day just to start doing this. We've been doing it for 20 years because our members couldn't get credit at a bank.'' Commercial loans make up 25% of the portfolio; some are agricultural loans, but many are what Goodwin called a ''cross-section of small town business. Things like beauty shops, service stations, a variety store, a logging contractor.'' Another quarter is in real estate loans and the rest consumer loans.

Grant Baker has $37 million-in-assets and 6,000 members in a county of only 8,000 residents. ''It's a very isolated area,'' said Goodwin. The CU got around the 12.25% cap on MBLs because it is in a low-income area, but Goodwin is still concerned by the restriction. ''If we expand our charter to include other areas, we'd have a problem. The cap on business loans makes no sense, anyway. There's no logic to it from the regulatory or business opportunity standpoint. Why single out this one area? Oh, I know the politics, but it should be overturned.''

Grant Baker is the largest user of the Farm Service Agency's loan guarantee program in the state, and Goodwin is surprised more credit unions aren't involved. For the past two years the CU has sold the guaranteed portion of the loans to Farmer Mac (a secondary agricultural real estate market). In return, the CU receives a servicing percentage on the portion sold.)

Losses have been minimal, said Goodwin (in keeping with the conclusions of the Treasury Study on member business lending at CUs released last January). Many loans go to family businesses that have been operating for several generations, he said.


Co-op CU (as of 6/00)
Total Assets $38.4 million
Total Loans $34.9 million
Total MBL $8.29

Co-op Credit Union
Co-op CU of Montevideo, Minnesota, makes the same kind of ''small town, small business loans'' as Grant Baker, said John Hansen, branch manager for its Canby office. ''Our average loan is for about $50,000. We have loans to a lumber business that makes prefab walls for construction, one to a welding manufacturer, some egg farmers and like that.''
The MBL portfolio is $8,279,229; assets are $38,354,127, making commercial loans 21.59% of the total, with 60% of that in agricultural loans. Cattle operations equipment (like feeders) and land purchases are costly, said Hansen, who would like to see the cap raised.

''The cap holds us back. We can't fund a large land purchase. A member might be looking at $500,000 for that. But if you want to help members, we've got to be able to do this. It's hard to turn them away.'' Co-op also sells loans to the Farm Service Bureau.

St. Mary's Parish CU (as of 9/00)
Total Assets $101.7 million
Total Loans $53.5 million
Total MBL $14 million

St. Mary's Parish CU
Richard L. Nesvold, managing officer of St. Mary's Parish CU, Sleepy Eye, Minnesota, said the CU has a $14 million MBL portfolio. With assets of $99.5 million, it constitutes 14.01% of the total, mostly in agricultural loans, predominantly real estate. There are also loans for farm equipment.

''We were grandfathered; we have an exemption for up to 100% of reserves, and we've been doing well, knock on wood,'' said Nesvold.''With our field-of-membership, it's inherent we be able to do these things.''

 

 

 

 

Feb. 26, 2001


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