MELROSE, Minn. – Getting a small loan in the 1930s was hard to come by for many of the residents here. So in January 1939, the Melrose Catholic Parish Credit Union was founded to provide low-cost loans to those living in two parishes. The field of membership would go on to expand to several school districts, a federal charter, a name change to Central Minnesota Federal Credit Union and the addition of several counties. It now serves nearly 27,000 members and has $336 million in assets. CMFCU President/CEO Richard Odenthal said they're literally located smack dab in the center of the state with all of its eight branches (a ninth will open this summer) located in communities with less than 5,000 residents. The economies here are predominantly agricultural-based – the county is the number one dairy producer and number two turkey producer in Minnesota. "We're an anomaly in the (credit union) industry," Odenthal said. "We serve rural areas. Since the inception, we've done what it takes to meet members' needs." That means being able to provide member business loans, an area that has been a boon for CMFCU but stands to be threatened should NCUA approve changes within its MBL rule, Odenthal said. Among the proposed suggestions, the agency has asked for feedback on amending the definition of construction or development loan to include loans for renovating or developing property owned by a borrower to produce income. A change in wording could mean having to turn away members' requests even though it was recently granted a 40% waiver from NCUA. He said the waiver wouldn't go very far even though tthe credit union has a $5 million cushion. "In our market, a three bedroom home might cost between $250,000 to $300,000," Odenthal said. "Land prices (range) between $10,000 to $18,000 an acre. There goes that cushion." CMFCU has $13.5 million in construction and development commitments with an outstanding balance of $11.5 million and another $2.2 million in the pipeline. The smallest loan is $91,000 and the largest is $2 million with the average being roughly $190,000. As the country's largest agricultural lender, Odenthal said the question becomes what dollar amount would be the threshold for improvements to property and building as a construction loan. Improvements can run the gamut from carpet to painting to landscaping but NCUA has not made it clear if these and others will be taken into consideration, he worried. "Would we need to classify normal repair items like replacing roofs, siding, parking lots, heating and cooling systems, all of which have useful life expectancies," Odenthal asked. "I feel there needs to be some sort of realistic measurement in place to make such a determination." One suggestion might be asking are the improvements greater than 50% of the property's appraised value, Odenthal offered. Another concern with amending the definition has to do with the logistics of segmenting construction and development loans from a credit union's entire loan portfolio. "(It) becomes a daunting task, especially when you consider the number of self-employed and small businesses that are served and represented by credit unions," he said. "Where do you draw the line? Do you segregate your portfolio by one-story homes? It's overregulation." The niche that credit unions have carved out from the void left by banks that turned away from small depositors will leave barber shops, hardware store and other mom and pop start-ups wanting, Odenthal said. "A lot of home-based businesses and entrepreneurs are doing business with home equity lines of credit and personal credit cards," he pointed out. To NCUA's credit, agency examiners here have been receptive to the credit union's feedback and worked with it to develop and improve its risk management systems over the years, Odenthal said. But there are systems already in place to ensure the safety and soundness concerns NCUA may have. Over CMFCU's 66-year history, its construction and development loan losses have been "minimal" and compared to its peers, charge-off ratios "have been consistently lower," he added. Delinquencies are also at "an all time low." "We do not enter into such relationships without first examining the risks and costs of monitoring and servicing (construction and development) loans," Odenthal said. NCUA's concerns with safety and soundness are legitimate, Odenthal concurred, and the agency's proposals have merit but each case must be looked at individually. "It is not a one size fits all regulation," he said. [email protected]