Changed MBL Landscape Prompts Northeast Shut Down
While it might have been a surprise to most in the member business lending world when word came that the seven-year-old Northeast CUSO would be shutting down, the timing actually could not have come at a better time.
Backed by what it says are strong and healthy financials, the Keene, N.H.-based firm announced on Dec. 3 that it would cease operating in April 2013 and distribute capital to its six credit union owners. Northeast said it will continue to provide services to its partners until then, after which, it will wind up operations over a period of months.
The CUSO offers business lines, term loans and commercial real estate loans for member-owned businesses. Northeast opened in 2005 to help credit unions develop small business portfolios and since then has processed more than $1 billion in business loans for credit unions in eight states. It carved a niche by providing loans under the $150,000, according to Scott Anderson, CEO of Northeast.
About a year ago, Northeast’s board and owners started having discussions about the CUSO’s future based on several external and internal factors, Anderson explained.
“My view, but I believe it’s also the view of the CUSO, is that we were in a different world than eight years ago when MBL CUSOs were springing up,” Anderson said. “Over the years, the original regulatory model that existed at the time was ‘those are our people that we’re originating and underwriting for’ and that was O.K. by the NCUA. That model has changed.”
To explain further, Anderson said there’s been a shift towards credit unions using a CUSO to meet their business lending needs to having more of a desire to do so in house. As a result, more credit unions started hiring experienced professionals to help build internal programs.
Like many multi-owned MBL CUSOs, Northeast wanted to bring credit unions together that could not afford to launch a program on their own and, at the same time, the group could better manage risks, Anderson said. He, along with Rick Slater, chief financial officer, embraced the idea, raised enough capital and started out with one credit union. Part of the goal was to keep the ownership small and the concentration on business loans rather than commercial real estate. Northeast continued to add more owners and partners over the years.
“As we looked back a year ago, we saw that everyone was up and going with successful business lending programs,” Anderson said. “All agreed. Mission accomplished.”
Regarding internal changes, Anderson compared it to the chicken and the egg dilemma. Even as the MBL CUSO landscape started to change, regulators reiterated their stance for hiring the appropriate staffers to oversee the complexities of business loans.
Anderson said there weren’t any financial or regulatory pressures that led to Northeast’s decision to shut down. Because there are outstanding matters, including how employees will be taken care of, he could not say how much capital will ultimately be distributed to the CUSO’s owners.
“When this group came together a year ago, we were going to return a substantial amount of capital,” Anderson said. “One of things they said to me was we’re not as concerned about that as having a successful MBL business in our credit unions.”
Northeast has nine employees and two offices in Keene and Burlington, Vt., which will be vacated. Anderson said the board’s biggest concern was the people who worked at the CUSO and how they would fare. There is a commitment to take care of everybody, but by giving them a year’s notice, the hope is that the impacted staff will have enough time to explore other pursuits, he pointed out.
“These are pretty talented people. I’m confident that they will all land on their feet,” Anderson said.
Option other than closing brought up issues over control distribution. So in the end, given Northeast’s strong financial position and the changing landscape of MBL CUSOs, closing became the favored route. Anderson acknowledged that since Northeast announced to all its owners and partners that it would shut down, there has been enough time to iron out any minor disagreements.