W ith a 56% expansion in its business-lending portfolio last year, American Heritage Federal Credit Union is proving that growth is possible despite the odds.
The $1.1 billion financial institution in Philadelphia has amassed $66 million as of December 2011 with the majority of business loan applications approved for nonowner occupied real estate.
“We had a good number of opportunities and still have a strong pipeline of approved deals pending,” said Bruce Foulke, president/CEO of American Heritage.
The credit union, along with the other 11 owners of Member Business Financial Services LLC, helped the Philadelphia-based CUSO reach the $100 million mark for loans serviced in 2011.
According to MBFS CEO Gary Graves, more than 436 loans were approved in Pennsylvania, Delaware and Maryland. The CUSO approved loans ranging from $25,000 to nearly $3 million last year.
Graves said a number of factors came into play that helped MBFS with its growth trajectory.
“The success can be attributed to the partners getting more acclimated to the business-lending climate in their areas and becoming more aggressive with the loan volume; additionally the CUSO added a new owner in 2011,” Graves said.
Formed in 2008, MBFS provides loan servicing, business loan portfolio management services, loan origination and underwriting, coordination of loan participations and loan participation accounting, preparation and recording of loan documents, and reviews of financials for third party due diligence.
Graves said the CUSO’s credit union owners approve loans for a variety of purposes, including commercial lines of credit to financing the purchase of investment real estate. Refinancing debt with commercial banks that no longer service the business owners are also growing transactions for credit unions, he added.
“Since the word has gotten out that credit unions are handling business lending, many businesses and existing members have turned to [them] as their prior banks stopped servicing their needs or have even requested them to move their relationships," Graves said.
At American Heritage, Foulke acknowledges that building a presence with the business community has been the biggest challenge.
“Overcoming the perception that credit unions aren't commercial lenders,” he said when asked about obstacles. “We are currently developing a dedicated business website linked to our main site. It will show products and services as well as the ability to access the members’ business account via secured user name and password.”
In addition to launching a website, American Heritage is planning to develop even more relationships with business owners through advertisement partnerships with members on the consumer side. The credit union is looking to grow its overall business-lending portfolio by an addition $34.2 million in outstanding balances this year.
The $186 million Service 1st Federal Credit Union in Danville, Pa., is also one of MBFS’s original owners but has been in the commercial lending arena for nearly 15 years, said Jeff Balestrini, vice president of lending. Thanks to residential rental units and small business loans, the credit union grew its portfolio by $2.2 million in 2011 to a total of $22.4 million.
“This is considered moderate growth for Service 1st standards, but very rewarding that we helped our business members during their time of need,” Balestrini said.
What may help the credit union grow even more is doing away with the 12.25% of assets member-business lending cap, Balestrini pointed out. Service 1st has addressed the issue through ongoing staff and CUSO training and with the hiring of an additional internal compliance officer, he added.
“Our biggest challenge is keeping up with the onslaught of government regulations,” Balestrini said. “We feel that seasoned lending institutions with strong historical track records should be given latitude to manage their lending portfolio's caps internally, not by a government agency.”
Graves’ goals for MBFS are ambitious, yet likely attainable. The CUSO has set targets of adding two new owners and growing to $160 million in loan servicing in 2012. Like Foulke, he agrees that there are still walls to break down.
“Our biggest challenge is getting credit unions that are not familiar with business lending to understand the process and become comfortable offering the added service to their members,” Graves said.
Graves has been on that quest since being named CEO of MBFS in September 2011. He has more than 25 years of experience in the financial industry and most recently served as vice president of commercial lending/SBA department manager for The Bank in Mount Laurel, N.J.
He promotes the CUSO’s experienced staff as a means to help credit unions develop their business model to help serve existing and potential members. The former banker said he noticed right away “how much more concerned the credit unions are with the relationship with their members.”
Still, he is acutely aware that the industry has experienced some lending challenges over the past few years. Notably, having the money to lend but few takers.
“The credit unions we support are doing better than most due to their increased activity of the business lending and the higher returns they generate to the bottom line,” Graves said. “Credit unions are able to offer similar, if not better, products and services for the member” than banks and other competitors.