When CU Business Group first got started 15 years ago, we focused primarily on helping credit unions start up their business services programs through strategic planning, market analysis and policy development services, and by offering commercial loan underwriting and documentation support.

"We found CU Business Group and decided they would be able to help us set up a full-service program and give us the expertise that we didn't have in-house," Brenda Worrell, COO/EVP of Idaho Central Credit Union ($3.6 billion in assets, Chubbuck, Idaho), said. "They helped us write our policies and procedures. They also helped with the initial training of our team on the loan officer side as well as the deposit side."

CU Business Group supported the startup phase of Idaho Central's business services program in this way for the first four years. But the credit union's commercial loan portfolio grew fast, and Idaho Central began hiring experienced commercial lending staff, benefitting from reduced expenses due to economies of scale.

"I think if your volumes are small, it makes sense to continue with the CUSO because they have the expertise and all of the resources that you can't afford to staff full time," Worrell said. "But we hit a level where, from a cost and a service perspective, it made more sense to bring the program in-house."

Adapting for the Long Haul

In the early days of CU Business Group, we didn't realize how quickly credit unions would look to bring their business services programs in-house. Once that became apparent, we also began to offer longer-term, specialized services on an "a la carte" basis.

For instance, CU Business Group conducts an independent third-party portfolio review for Idaho Central on an annual basis. CU Business Group has also provided Idaho Central with expert technical assistance in areas like the allowance for loan and lease losses, where we can offer a broad industry perspective.

"CU Business Group has been really good at helping us," Worrell said. "They bring different ideas in to help us make our program better."

Mid Oregon Credit Union ($273 million in assets, Bend, Ore.) relied on CU Business Group to help start its business services program nearly 15 years ago. Since then, it has used the CUSO to help diversify its loan portfolio through participations, vet commercial lending staff hires and even conduct due diligence on a bank loan portfolio it recently purchased.

"This was right before Thanksgiving, and a team from CU Business Group was onsite within a week, reviewing every single one of the loans, about $9 million in total," Bill Anderson, CEO of Mid Oregon, said.

Choosing the Right Partner

Not all CUSOs are structured the same way. Some are more narrowly focused on offering a single service and are not set up to help a credit union succeed through their entire product life cycle. Others may not have the size, resources or expertise to serve a large swath of the market.

Here are some questions to ask a prospective CUSO partner during the due diligence phase:

• How long have you been offering this service? It's important to dig into the CUSO's relevant background and experience, ensuring alignment with your specific needs. "I really like finding out about the history of the organization," Anderson said. "Why were they created? What kind of expertise do they have? And how have they been growing through the years?"
• What challenges has your CUSO faced, and how have you dealt with them? During her initial round of questions, Worrell asks about issues the CUSO may have faced in the past, and how it has maintained its service levels in dealing with them. "I also like to ask about the current or future risks they may see in their industry or service areas," Worrell said. "What are their plans to mitigate these threats?"
• Are your strategic goals aligned with ours? It is critically important for the CUSO and credit union to be on the same page in terms of strategy, goals and philosophy. In the case of a business lending CUSO, for instance, will it underwrite loans in line with your commercial loan policy, or will it take a "one-size-fits-all" approach, relying on a centralized standard policy? "I want to know how the CUSO makes money, and what its motivations are," Anderson said. "What are the goals of the organization?"
• How many clients have you lost? Why did they leave? This line of questioning can be very telling. By asking if the CUSO has lost any key customers recently, you may uncover some hidden service issues that have yet to bubble to the surface. "If you see a loss or decline in the customer base, I would be concerned," Worrell said. "Some CUSOs are afraid to discuss this, while others are very up front and explain who they lost and why."

It is important to take the time to conduct comprehensive due diligence on any new CUSO partner, just as you would with any new vendor relationship. Reaching out to current references is vital.

When Is It Time to Say Goodbye?

Of course, not all relationships are designed for the long term. Organizations grow and change, and the time may come when your CUSO can no longer meet the needs of your credit union.

How do you know when it's time to say, "It's not you, it's me?"

Aside from common red flags like declining service standards and slow response times, keep an eye out for high staff turnover. A lack of industry-specific expertise can become a problem as your needs become more sophisticated. Lastly, if the CUSO's business model isn't scalable, with the ability to add staff as volumes grow, it won't be able to keep up with growing demand.

It's important to keep close tabs on your CUSO relationship over time, just as it is to conduct full and comprehensive due diligence before the contract is signed. This way, you can ensure your CUSO-credit union partnership will remain a match made in heaven.

Larry Middleman

Larry Middleman is President of CU Business Group, LLC. He can be reached at 503-232-2876 or [email protected].