Development Funds Jump Start Microlending at Louisiana CU
The $87 million Shreveport Federal Credit Union has used the long-term funding it received from the U.S. Treasury's Community Development Capital Initiative to grow its portfolio of very small business loans.
Funded with money from the Troubled Asset Relief Program, the CDCI funneled longer term, low-interest loans to community development credit unions that NCUA approved as "viable." Credit unions that accepted the loans had to agree to repay the money in eight years and to accept a host of other restrictions meant to control the use of TARP funds by much larger banks.
While the restrictions on the money led some credit unions that had received awards to, ultimately, not accept them, in the end 38 credit unions wound up taking about $70 million from the CDCI program.
One of those was Shreveport Credit Union, headquartered in Shreveport, La., a city of more than 200,000 people situated in the western part of the state, not far from the border with Texas.
Shreveport CEO Helen Godfrey-Smith explained that the CDCI money was the push the credit union needed to finally iron out some problems with a lingering application to the Treasury's community development fund for recognition as a community development financial institution. CDFI status was a requirement to apply for CDCI money.
Godfrey-Smith explained that Shreveport FCU had been chartered in 1956 to serve the public employees of the city of Shreveport. Aside from opening its membership further to include employees in the city's transportation services, the credit union did not move more deeply into the community until the early 1980's when it began to add SEGs until it reached its current level of roughly 125.
According to NCUA records, the CU has maintained strong performance even through the economic downturn, closing out 2010 with a capital ratio of 13.37% and a return on assets of 0.77%. If it had not been for the additional NCUA premiums, the CU would have a return on assets of 1.66%, after the CDCI money.
Godfrey-Smith attributed some of the CUs strength to a focus on making Shreveport her members primary financial institution. That meant Shreveport had almost become designated as a high-performing credit union, or one where every member uses at least 3 of the CU’s products or services.
"We are at, I think, between 2.5 and 2.7," Godfrey-Smith said. "So we aren't at three yet, but we are getting close."
She reported that the CU received $2.6 million from the CDCI program and that the credit union had opted to take the money even though, in many ways, it was not a good fit for the organization.
For example, even though the credit union has never given its employees bonuses of more than a few thousand dollars–and very few of those–the credit union's top 20 most highly paid employees had to sign documents that they would not accept excessive bonus payments.
"We are very fortunate in that we have a very flexible and understanding staff which believes in what we are trying to do," Godfrey-Smith said, recounting how at least one CDCU had to decline the money because not every staff person would sign the paper.
Then there is the matter of the "excessive or luxury expenditures policy" that the credit union both put into place and put on its website because, Godfrey-Smith said, having one was a condition of the CDCI money.
"It was one of the conditions, but it really didn't apply to us. We have never had excessive or luxury expenditures," she said laughing. "It’s true, I drive a Mercedes, but its mine. It’s ten years old and it’s paid for," she said.
As an example, the policy sets strict limits on facility upgrades, dictating that anything in excess or beyond reasonable variation of standard and not having approval is considered "prohibited" and is not acceptable for implementation. Examples include expenditures for specialty or antique furniture, customized finishes or construction of nonstandard office sizes or private restrooms.
Even with the extra requirements that the CDCI funds carried, Godfrey-Smith said the money was still valuable to the CU as it has allowed Shreveport to jump start a program of microlending to the CU’s entrepreneurial members.
She said a microloan in her membership was running at about $10,000 and that the CU was making the loans to members who had established businesses that needed the capital to expand.
She explained the CU had opted to help members with at least five years of entrepreneurial experience to both help it better manage loan risk and to help make sure the money went more quickly to job creation.
"Maybe they have had a lawn care or home improvement business that they have wanted to expand for some time and just lacked the money for additional equipment they need," Godfrey-Smith explained. "A loan from their credit union can help them get that equipment and then have to hire additional people to help with the extra work.," she added.