The Rundown

• Business owners hearing more on what CUs have tooffer.
• Banks getting more aggressive on retaining businesscustomers.
• Refinances, helping to keep costs low among CU’sincentives.

Brett Martinez understands that the real, meaningful work startsafter a new member joins a credit union.

As president/CEO of the $1.9 billion Redwood Credit Union inSanta Rosa, Calif., he welcomed, the 800 new members who signed onduring Bank Transfer Day and on the following Monday.

How those fresh relationships will shift over into businessloans, credit cards, mortgages and investments is the nextlong-term step to cementing them. An even better prospect is thosewho will move their existing loans to Redwood.

“We’re focused on bringing over full relationships, not justchecking,” Martinez said. “So far, we’ve had good success with newloan requests. Across the board, they’re up. This wasn’t about achecking account. I call it divorcing a financial institution. Youwant them to bring it all over.”

One area primed for more growth is Redwood’s robust commerciallending program. Martinez said the credit union has $43 million inbusiness loans with another $20 million in the pipeline. Thecooperative is the top U.S. Small Business Administration lender in its market andamong the agency’s top five credit union lenders in the country, headded.

Martinez said it’s still tooearly to say how many of Redwood’s newest members are smallbusiness owners, but one thing he knows for sure, the credit unionhas responded to a demand for business loans and deposits. A 2003survey asked members what they needed the most. Martinez said manyof them said they wanted both their personal and business accountsat the same financial institution.

Meanwhile, business loans at Redwood have doubled sinceSeptember, Martinez pointed out. He attributes the increase to allof the press surrounding Bank Transfer Day and the uninformedlearning that credit unions are an alternative to banks.

Still, what people probably aren’t hearing about is that creditunions do offer business loans, Martinez said. Because Redwood is awell-known lending leader in its small business markets, it islikely the exception.

“Consumers tend to bring all of their accounts over at one time.With businesses, it’s usually the loan first, and then we buildfrom there,” Martinez said. “It really depends on what their needsare.”

For that reason, overall, it’s unlikely that small businessowners moved all over their accounts over on Bank Transfer Day, Martinez acknowledged. At Redwood, roughly45% of its 200,000-member base is business owners. Based on pastexperience, most won’t switch financial institutions on aSaturday.

Redwood’s business service offerings have helped create loanvolume, Martinez said. Having a full suite of products and serviceswent far a few years ago when banks started scaling back theirlending activity.

“We were lending when others weren’t,” he recalled.

While opportunities are still plentiful at Redwood, Martinezemphasized that the credit union will only go with quality loans.Some of those coming over now are former, longtime bank customerswith solid financial track records.

“Banks were trying to shake their balance sheets and notrenewing,” Martinez said. “They were doing what their regulatorwanted them to do but losing good customers at the same time.”

Looking ahead to build on those new alliances, Redwood, likesome credit unions, may have a 12.25% member business lending cloudhanging over their efforts. Martinez said Redwood has about twoyears left before it reaches its MBL cap.

“And, that’s a shame. The closer we get to it, the sooner wewon’t be able to serve our marketplace.”

It’s one thing to fill a void left by banks, but Martinez saidRedwood has followed the rules–acquiring the proper lending talentand keeping charge-offs and delinquencies to a minimal. Yet, theMBL cap could put the credit union’s future plans in reverse.

“We’re helping small businesses deal with all of the issuesgoing on. Moving up the cap and [revisiting] what qualifies underthe cap needs to happen,” Martinez said. “My personal opinion isunoccupied real estate does not belong under the cap.”

At the $4.4 billion Randolph-Brooks Federal Credit Union,business lending is as big as the Lone Star State. The Live Oak,Texas-based cooperative has nearly $220 million in member businessloans and is active SBA lender participating in many of theagency’s programs, including its Patriot initiative that helpsmilitary personnel and veterans. Raddon Financial Group recentlyranked the credit union among 2010’s top 20 high performers in theindustry.

On Bank Transfer Day, RBFCU opened up 727 new accounts, said SonyaMcDonald, senior vice president of market development. In October,the credit union had a 70% increase in membership and a 93% jump inchecking accounts compared to October 2010.

“We have developed a reputation in our markets for offeringvalue and that has paid dividends. More folks are starting to paymore attention,” McDonald said. “The next step is business asusual, which is deepening those [new] relationships.”

Since 2008, RBFCU has seen an increase in its business accountsand loans prompted mainly from banks reducing their lines of creditto small businesses, said Mark Sekula, executive vice president andchief lending officer. For 2011, loan growth is on track to be inthe 20% range with deposits at 25%, he added.

While the numbers are solid, Sekula said the competition forsmall business accounts has grown significantly over the past 45 to60 days.

“Banks were losing their relationships, but now they’re workingharder to retain them because losing them affects charge-offs,delinquencies and in some cases, yield,” Sekula said.

As a result, RBFCU’s numbers have dropped slightly and thecredit union has had to increase its marketing efforts, Sekulanoted. Still, he said this is a great time to search for newpartnerships because the bigger unknown is whether banks arebumping up fees for business services. While small businesses mightbe OK with fees on their personal accounts, they may not be with anincrease on their commercial accounts.

“I can’t say if that’s happening on the business side. Most arealready paying some fees on their commercial accounts,” Sekulasaid.

Unlike some credit unions, RBFCU has much more room to work withto court new members on the loan side. Sekula said it can grow upto $350 million and remain under its MBL cap. Still, he is anadvocate for raising the cap and has worked with smaller creditunions seeking guidance on managing under the threshold.

In June, Sekula traveled to Washington to testify before a House Small Business Committee to supportthe repeal of a provision that would require data collection onbusiness customers. Included in a 2010 bill to overhaul thefinancial system, Sekula said the requirement would be a burden tocredit unions and make it harder for them to lend tobusinesses.

Back at RBFCU, going forward, Sekula said as on the consumerside, deepening relationships will be just as critical with smallbusinesses post-Bank Transfer Day.

“Our greatest opportunities will be with refinances. Businessowners want to keep their expenses low and have fixed payments. Wecan work with members for the long term.”