MBL Approaches Are Unique at Two Calif. CUs
PORTLAND, Ore. — When the business lending slump was at its peak a few years ago, entrepreneurs who were working with Redwood Credit Union and Orange County’s Credit Union were likely immune to the collapse.
Both of the California cooperatives saw their business and commercial real estate lending programs surge during a time when banks had closed their capital coffers.
Representatives from the $1.8 billion Redwood in Santa Rosa and the $970 million Orange County’s CU based in Santa Ana shared their ideas for growing loans and portfolio management to a packed room at CU Business Group LLC’s National Business Services Conference.
Redwood started its program in 2007 mostly through participation loans, said Michael Downey, senior vice president of business services. Today, that piece has grown to $27 million contributing to the $110 million in business loans now in the credit union’s portfolio.
Annual loan growth has been about $30 million each year, he added. There were about 2,000 business members when Downey came aboard in 2006. That figure is now well over 5,000.
“We wanted to be a member-focused organization,” Downey said. “We wanted to get the word out we were open for business.”
That plan involved a number of targets, including increasing branch staff training on products and services, adding commercial real estate loans in 2007 and earning the Small Business Administration’s Preferred Lender designation.
After Redwood approved its first SBA loan in August 2008, Downey said there were new opportunities to aid other small businesses in the North Bay region that were being pummeled by losses and bank rejections.
“In 2009, it was not a huge chore in North Bay to become the biggest business lender because we were the only lender [of that kind] in the area,” Downey recalled.
The SBA’s 504 loan program turned into a huge refinancing tool for Redwood when the 90% guarantee was temporarily integrated. SBA Express and 7(a) loans have brought success as well, Downey said. The credit union does $15 million in SBA loans each year.
On the commercial real estate side, Redwood keeps it conservative with a 60% loan to value ratio, Downey said. Looking ahead, CRE refinances through conventional and 504 loans will continue to be a growth driver. The SBA is also expected to play a huge part for the credit union as it continues to compete with entities such as Wells Fargo, Bank of America and community banks.
At Orange County’s CU, working with a network of more than a dozen, area brokers has helped its CRE program grow to $120 million, said Russell Torge, vice president and manager of commercial services.
The credit union recently received a waiver that expands its lending authority to $194 million. Torge said CRE financing is the loan portfolio’s main objective. While the credit union works with brokers, it does all the underwriting and has an internal loan committee.
The average loan amount is $725,000 and its largest loan is $4.2 million, Torge said. OCCU concentrates on plain vanilla properties within the single-family, office, industrial and retail spaces. Construction and development loans, receivable financing and other niche areas are not a high priority because “they’re more risky and more work.”
One of the credit union’s biggest drivers is not charging a prepayment penalty, Torge said.
“We get more borrowers that are willing to pay our rates because they don’t have to pay that prepayment penalty.”
While OCCU competes with Freddie Mac, the SBA, banks and recently, smaller life insurance companies, Torge said the credit union has been able to grow its CRE loan program because it doesn’t charge a litany of fees to borrowers. For instance, no upfront fees are charged until the appraisal is ordered.
The credit union is not a big SBA lender but does offer 504 loans, said Patty Jimenez, OCCU assistant vice president of business services.
Torge said it is very critical to keep its staff up to speed with ongoing training. A strong proponent of rewarding staffers for their efforts, everyone works on salary plus commission that are based on loan originations.
By keeping an eye on loan mix, OCCU has built a diversified portfolio, he offered. Apartments are quite competitive these days compared to industrial spaces and the credit union has had to be more flexible to complete deals.
“It’s not uncommon for a borrower to have a net worth of $50 million or higher,” Torge said. “But we look more at liquidity. We must be comfortable with the borrower before we proceed.”