By the 1990s, the lending landscape in South San Francisco had changed considerably since a group of teachers came together in 1954 to charter a new credit union for access to small, personal loans.
Originally named the School Personnel Credit Union of South San Francisco, the cooperative decades later received regulatory approval to change its name to Sierra Point Credit Union and expand its field of membership to serve the entire area.
The $27 million credit union in South San Francisco is one of the more than 150 financial institutions that are clients of Business Partners LLC, a Chatsworth, Calif.-based CUSO founded and co-owned by the failed Telesis Community Credit Union. Sierra Point partnered with BP in 2004, nine years after the business lending CUSO launched in 1995, said Deborah Trapani, president/CEO of the credit union.
Sierra Point’s initial investment of $500,000 in BP has paid off over its nine-year relationship by 230%, Trapani noted.
In even in 2012, when the NCUA had complete control of the CUSO, she said Sierra Point still managed to receive a return of more than 5%. That despite the fallout from Telesis’ conservatorship and later, its absorption by the $1.2 billion Premier America Credit Union, also in Chatsworth.
And Sierra Point plans to stick with BP for the long term.
“They’re on better footing now that the NCUA is out. Now that they have three credit union owners, new guidelines have been instituted,” Trapani said. “The changes have been very beneficial.”
“In many ways, Business Partners is redefining itself by getting back to basics. We have a very strong capital position so we can reinvest in the business by making improvements in technology, while at the same time making significant improvements to our balance sheet by reducing expenses,” said Dave Maus, president/CEO of the $1.2 billion Public Service Credit Union in Denver and board chairman of BP, in the May 1 issue of Credit Union Times.
Still, the NCUA’s takeover of BP created a tense atmosphere. Trapani said the regulator had concerns about the servicing not being done as timely as it would have liked. She disagreed with how the agency conducted its audit.
“They audited BP the way they would a credit union and I just think it was wrong,” Trapani said. “They were recommending things that didn’t make sense. Mostly, it was loan reviews and getting them done on a timely basis and more global cash flow analysis. Those things had already been implemented.”
John Fairbanks, NCUA public affairs specialist, said since the regulator sold its interest in BP last year and no longer has any ownership interest or control, it would not comment.
Trapani emphasized the separation between Telesis and BP even though the credit union owned 60% of the CUSO.
“Now, Telesis may have overextended itself. I really don’t have any knowledge of that. They are two separate entities, and they always were,” Trapani explained. “We made sure we tried to keep it separate.”
Going back to 1998, Sierra Point made its entry into business lending through participation loans, Trapani said. Located in an urban area in San Mateo County, an ethnically diverse and affluent swath that covers most of the San Francisco peninsula with Silicon Valley situated at the southernmost tip, the credit union was looking for new ways to generate income, she recalled.
“It was very difficult to get consumer loans, so we looked outside of the box,” Trapani said.
A meeting with Jean Faenza, the former president/CEO of BP, who was working at Telesis at the time, introduced Trapani and Sierra Point’s board of directors to the CUSO. Trapani said Grace Mayo, Telesis’ former president/CEO, spent two hours talking with the board about what BP had to offer. After six months of due diligence, including look at other potential partners, Sierra Point solidified a deal with BP.
There’s a notable connection between BP and Sierra Point. Jean’s sister, Jill Faenza, is executive vice president of Sierra Point. When asked if Jill had any influence on the credit union signing on with the CUSO, Trapani said it was not a factor.
“The decision was made by the credit union’s board,” she said. “I’ve known Jill for 30 to 35 years. Jean and I actually worked together at one point. We have stayed in touch but now, it’s more social. I don’t talk to her often. I try to keep business and social matters separate.”
Trapani said, like Jill, she feels that BP is a board commitment. She did not want to comment for this article.
“She is part of the strategic planning but the board decides based upon my recommendations and their due diligence what is best for Sierra Point,” Trapani said.
Meanwhile, in 2005, the credit union closed its first loan through the CUSO for a furniture store, Trapani said. The loans, which tended to be around $1 million, were for gas stations, storage units, and health care and retail offices, among others. While the participation loans with other credit unions were in states such as Colorado, Florida, Illinois, and Texas, Trapani said most of the business loans were in Sierra Point’s area.
According to Sierra Point’s NCUA Call Report, as of March 2013, the credit union is considered well-capitalized at 10.38%. Three delinquent member loans totaled $421,200. There were no MBL charge-offs and of the 126 participation loans on the books, five were delinquent. In all, Sierra Point has $5.7 million in business loans.
Pulling out a spread sheet of all the loans Sierra Point has closed on through BP, Trapani said there have not been any losses. There are two troubled debt restructuring arrangements pending NCUA approval, a couple of forbearances and a loan that ran into some problems because of a decrease in property value making it hard for the member to refinance, she explained. Since 2009, the credit union has had at least 20 payoffs, Trapani noted.
“It isn’t that we’ve had some problems but we tend to be more conservative,” Trapani said.
Sierra Point was approved for a waiver in 2006 to do 12.25% of its assets on business loans, she said, adding, the credit union has had to pull back on lending since reaching its cap in January. To those credit unions that have either left BP or are skittish about partnering with the CUSO, Trapani said take another look. But, ultimately, the responsibility falls with the credit union.
“I would tell them to revisit BP and you’ll see that there’s a difference,” Trapani said. “Credit unions are responsible for these loans. BP is not an underwriter. We use a third-party underwriter. There have been loans that I’ve said ‘no’ to. It’s up to the credit unions to do their homework.”