LAS VEGAS – Two things are certain about business lending in credit unions: it provides diversification for eroding consumer loans, and merger-driven commercial banks have opened huge windows for growth. And something else: new deposit relationships are springing up. Those were some conclusions drawn from CU executives discussing their heightened interest in member business lending-and deposit expansion-at the annual conference of the National Association of Credit Union Service Organizations convened here May 6-9 "All those local consolidations and conversions by community banks a few years ago created service issues and a lot of unhappy customers," observed David Doss, president and CEO of the $600-million Columbia Credit Union of Vancouver, Wash. And CUs, like his own have stepped into the void "and are now listening" to the requests of member/business owners CUs, said Doss. That has meant upgrading technology, hiring ex-bankers to help run new business departments, and training staff not to fear this new line of service. Research, said Doss, shows "we're very capable" of becoming a factor in the business. Speaking at one of several break-out sessions devoted to business services at the NACUSO meeting, the Washington CU executive detailed Columbia's successful move since 1999 of reaching out to the business community and building a portfolio of $75 million with $18 million in overlines. In choosing MBL, Doss said the problem facing CUs on the consumer side has been the increased pressure on margins and longer terms with the annual compound growth rate dropping from 13% in the 1980′s to 8% in 1990 and "most recently has been averaging at about 6%." "And now we have seven-year auto loans plus a tougher first mortgage market," observed Doss. The new environment, he said, "makes it harder to compete" which is why many CUS like his own have sold their credit card portfolios after witnessing rising loss ratios. "I think one reason that we've been successful so far is that we recruit community bankers," declared Chuck Anderson, Columbia's senior vice president, who joined Doss on an NACUSO panel. With training in bank branches all but nil in light of that industry's centralization, Columbia, said Anderson, has found it easy to find disillusioned bankers eager to sign up with a CU. "Outside of a trainee, you know we have 140 years of banker experience with the seven in our department," declared Anderson, stressing also the need to recruit experienced data support staff. At a separate "networking" session at the NACUSO conference in which business lending was discussed, Frank E. Berrish, president/CEO of the $1.3 billion Visions Federal Credit Union, Endicott, N.Y., called the potential for CUs in this area "just tremendous." The New York-based CU has put on business balances of $30 million since starting out two to three years ago, and "we're projecting $200 million in 10 years, and I've been known to often exceed my projections." He said the issue of business lending came up at a meeting of top CU executives at the CUNA Roundtable in Phoenix "the day before the NACUSO meeting, and the big discussion there was the drop in consumer loan demand and the need to diversify." He said Visions "is going slow" in business lending, but like others it looks at hiring experienced lending executives to manage the operation. "You simply can't forget the potential on the deposit side which is an area where we've done well," related Bernard Isabelle, senior vice president of Greylock Federal Credit Union, Pittsfield, Mass. The $715 million Greylock, he said, has a business portfolio of $21 million, but "we've been able to pick up $15 million in deposits" by offering business insurance services. Agreeing on the need for experienced help, Greylock first hired a former president of a commercial bank as a consultant to oversee its business operations and then recruited an experienced commercial lender for the unit. "So far it has worked well-knock on wood with little delinquencies," he said. A key element in Greylock's success has been a formal training program in the branches in which lending officers make joint calls with branch managers "to teach them how to develop the business." The underwriting part is still handled in the main office, but branch mangers get a hands-on approach to soliciting and booking business credits, said Isabelle. Isabelle, who is chief financial officer and president of Greylock's CUSO, Greylock Financial & Insurance Services Inc., noted also that because of Massachusetts anti-commingling law the CU has had to retain two separate CUSOs-one for insurance and one for investments. "We're now planning to go into property and casualty insurance," he added. Columbia CU's Anderson in Washington stressed the difficulties of eliminating "fear and the uncertainty" of a staff trying to understand the service needs of businesses when they are so used to dealing with simpler member requirements. In addition, the CU has to overcome "the passive resistance of the management team" to handling business services. On the deposit and fee side, Anderson also noted his CU, located in a Portland, Ore. suburb, brought in $500,000 in fee income last year, and while it has not pursued business deposits "as aggressively" as it might, the CU does see potential. Other CU speakers noted the push into cash management services as a source for new business. Another NACUSO panelist, Steve von Rajcs, president and CEO of Members Business Services, a CUSO of Arrowhead Credit Union in San Bernardino, Calif., said the CU's Business Banking Group booked $49 million in MBL's in 2002, increased deposits by $10 million and collected $181,000 in loan fees. von Rajcs also agreed that integrating the CU and commercial banking cultures is a difficult one because one is so "member focused" and the other is "profit focused." Citing the problem of the untrained employee used to giving away free services to members, "we did have to do a lot of training to educate our staff that we will charge businesses for services" declared Stacie Leake, vice president of Arrowhead who joined von Rajs on the panel. "You simply have to be patient about this-hire the right people and build your portfolio slow and steady," advised von Rajcs. -

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