Promising CU Startup Bites the Dust in Oregon, Capital Requirements Blamed, But Were Regulators Too Inflexible?

PORTLAND, Ore. – In the end, time ran just ran out on the Hacienda Community Credit Union. The $3 million CU which opened to great promise and fanfare two years ago couldn’t muster the capital it needed to keep up both its rate of growth and achieve self-sufficiency and so it had to accept a merger proposition. As of March 31, 2005, the credit union became the Hacienda Division of the $90 million Point West Credit Union. “It’s a little sad, but in the end I believe our board of directors made the best decision they could,” said Yolanda Karp, Hacienda’s former CEO and now the executive in charge of the Hacienda Division of Point West. “We had three merger offers and so we were able to choose the one which would best benefit our members,” Karp said. In its two years of existence, Hacienda Community managed to add 2,100 members to its rolls and made more than $2 million in loans. The credit union opened on October 10, 2002 and had made 56 loans worth more than $1 million by April 2003. The strong demand led Karp and other credit union supporters to feel optimistic about the credit union’s prospects, but Karp had not forseen some of the pitfalls which would later befall the effort. Among them included the credit union having to cut its relationship with the $1.8 billion Portland Teachers Credit Union after only a year and the strong demand for capital that the burst of growth brought with it. “In retrospect, I think the pulling away from Portland Teachers may have been a little premature,” said Karp, “but the regulator appeared to insist and so we did it.” The loss of that relationship hurt Hacienda, Karp said, because it meant that more of the credit union’s back office responsibility fell on the credit union and led it to have to hire more staff. The new hires, in turn, hiked the need for more capital which the credit union needed to find grants to obtain. Those grants were hard to find, even though the credit union had been designated as a low-income credit union by the NCUA and been recognized as a Community Development Financial Institution by the CDFI fund. In fact, the credit union was a recipient of a $99,000 grant from the Community Development Financial Institutions Fund during its 2004 round of grantmaking. But it was money that the credit union was never really able to use. “When we received the CDFI grant we were very happy,” said Karp. “But in reality it had strings which prevented us from really making use of the money.” Karp said the credit union was also not allowed by the state regulator – the Division of Finance and Corporate Securities of the Department of Consumer and Business Services – to make use of secondary capital investments or deposits that NCUA’s regulations would allow it to use as a low-income designated credit union. “We met with the Federation,” Karp said, referring to the National Federation of Community Development Credit Unions, of which Hacienda Community was a member, “but the only thing they could offer us was secondary capital,” Karp said. But Ed Simkins, manager with the Division pointed out that the split between Portland Teachers and Hacienda Community had been set into the business plan and he contended that the regulator had not been asked to extend or review it to make it longer. He also noted that there is no provision in Oregon law for a credit union to have secondary capital, despite what NCUA regulations may allow. “It’s not our business to really run these institutions, of course,” Simkins said, “but we want them to succeed. I expect we will debrief ourselves about this situation and try to determine if there is anything we could have done differently or that another credit union following in their footsteps could do differently.” Karp also pointed out that the credit union members had helped bring pressure on the credit union by asking for products and services that would have been out of reach for years as Hacienda Community but which the credit union will be able to offer as a Division of Point West. For its part, Point West applauded the merger in a press release and noted that the move will allow it to serve a community it has long wanted to serve. “Serving the Latino population in our area was a major topic of conversation for the Point West Board of Directors prior to this merger opportunity presenting itself,” said Robert Barzler, CEO of Point West. “We planned to invest in the Hispanic Community and make a concerted effort to serve this growing population.” Reaction to the news of the Hacienda merger has ranged from surprise to shock around the industry since so many had viewed the new credit union, which had been the first chartered in Oregon in 20 years, as a potentially rising star serving a population which many believe to be badly in need of credit union services. “I think the merger is surprising and somewhat sad,” said Cliff Rosenthal, executive director the Federation. “It does seem to us that dropping the relationship with Portland Teachers likely took place too soon. I don’t know any credit union that could really be considered self-sufficient in as little as a year. More like four or five years are usually needed.” -