A veteran bond and commercial finance expert said credit unions can find opportunities to create new streams of income without necessarily creating new risk.
Tim Thomas, vice president of lending for the $75 million Credit Union of the Rockies in Golden, Colo., outlined his ideas in a report, “Five Ways to Ramp Up Fee Income: A White Paper for Community Credit Unions.”
Thomas, a specialist in low-risk investment for financial institutions, recently joined the 9,000-member credit union and said he is now working to set up its involvement in Small Business Administration guaranteed and participation loans.
Thomas wrote the paper last fall while he was working with Izaak Bond Investments, an institutional municipal broker in Denver. Before that, he was with the Small Business Administration and Bank of the West, and he said his paper draws on more than 25 years in corporate and real estate finance experience.
“The race is on for winning and retaining profitable members and finding new sources of noninterest income to replace what is being taken away through regulation and through the failure of U.S. Central and much of the corporate credit system,” Thomas said.
“It’s time to look at opportunities for outside income while offering seamless service to your clients,” he said. “You can actually add profitable products and services without adding any credit exposure or expanding staff or taxing scarce capital.”
Thomas said some of his suggested products and services can be provided by CUSOs or the credit union may have to go outside that realm. “It’s up to you to select the very best and most competent provider,” he said.
Here are his five areas of focus.
Wealth management and financial planning services. Most community CUs have at least a few high-asset loyal members. Thomas said top talent can be provided to those members and credit unions can share in the fees.
SBA and USDA loans. Thomas describes how to generate up to 2% on each loan without having to directly deal with SBA processes or add staff, primarily by selling loans and transferring the risk.
Working capital lines for small and mid-sized businesses. Thomas said credit unions don’t have to refer this business to a bank, but instead can offer working capital lines that are then assigned to a third party for a fee.
Residential mortgages. Thomas said credit unions can originate residential mortgages without taking on undue risk. Using an independent mortgage banker is one option he describes in his paper.
Small-balance multifamily lending program. “The apartment market is doing well in all but the most distressed job markets in the country,” Thomas said.
While the products vary widely, and “there are hundreds of strategies out there,” Thomas said, “whichever path you choose, the key questions in evaluating each strategy are the same.”
Those questions include asking if the product fits the member base, if the vendor is reliable and provides training, identifying the appropriate CU staff to handle the product and assessing the impact on headcount and budgets.
Thomas said he also advises asking whether the product meets regulatory requirements, if it creates exposure from a “representations and warranties” standpoint and, finally, to decide “which products offer the best return for the investment of time and dollars.”