FORT WORTH, Texas – Five credit unions covering the state's major population centers have combined to create one of the state's largest credit union service organizations in a bid to boost member services and expand their niche in small and mid-sized commercial markets primarily served by community banks. Based on the ground floor of EECU in Fort Worth, Texas, Business Lenders Group LLC opened officially August 1 and added its final member/owner, Firstmark Credit Union of San Antonio, in a meeting Aug. 23. After a year of planning, credit unions began joining the organization in May. Besides Firstmark and EECU, the CUSO includes as permanent members Community Resource Credit Union of Baytown Texas, First Community Credit Union of Houston and United Heritage Credit Union of Austin. The CUSO is backed by nearly $2 billion in assets and is headed by former local Chase/Bank One executive Robert M. Campbell. It includes three credit unions that owe their origins to Texas educators. One is headed by a former Texas Credit Union Department commissioner and a second by a former member of the state commission. Robert Rogers, the former state credit union commissioner who heads EECU, said the new group is focused on member business loans of less than $250,000 – a market often ignored by the mega-banks flooding into Texas. “One of the things we've had a hard time doing is finding non-credit union partners – and I'm talking about banking institutions – that wanted to handle loans of less than a quarter of a million dollars and even sometimes a half million dollars,” Rogers said. “We're not telling you we won't take bigger loans. But we certainly are going to be looking at targeting the smaller businessman – the businessman who needs some help.” The newest mover in a growing trend toward CUSO-managed commercial loans is one of four or five major CUSOs in Texas, said Richard Ensweiler, president and CEO of the 637-member Texas Credit Union League and the national chairman of CUNA. Ensweiler and Texas Credit Union Commissioner Harold E. Feeney said the trend toward CUSOs is driven by the ability to pool resources and hire the expertise needed to handle complex commercial loans. A side benefit is the CUSO's size allows its owner credit unions to offer members more and sometimes larger loans. Federal regulations cap member business loans at 12.25% of a credit union's asset base and 1.759% of its net worth. While the credit union trade associations are lobbying to raise the asset cap to 20% and to adjust the minimums factored into the formula as part CURIA, the outcome is uncertain amid opposition from the nation's bankers. With nearly $579 million in assets, EECU's member-business loans are capped at about $70.9 million. With $392 million in assets, United Heritage's business loans are capped at $48 million. Processed by staff in Fort Worth, the loans will be originated and issues through the individual credit unions. They represent a cumulative member-business-loan cap of about $245 million. “I don't think it's about making bigger loans,” Ensweiler said. “I think it's a matter of sharing the cost of acquiring the expertise.” Hal Thomas, president and CEO of Community Resource Credit Union, said his Houston-area institution has $170 million in assets and 22,000 members and can't handle larger member-business loans – at least not alone. So far, it's made one $90,000 loan through the new CUSO. “We simply were not at the size that in our opinion we could do a very good job of hiring and locating and getting that program going,” Thomas said. “We combined to so that our investment would help hire a qualified candidate. We've got the technical expertise to provide all of the things necessary. It just seemed to come together.” Thomas said each loan will be limited to the asset cap on the originating institution – regardless of the size of the CUSO. “Each credit union will stand on its own,” he said. “However, one of the things we're looking forward to is that one CUSO could participate through another CUSO. We as a smaller credit union may hit our ceiling, but we can offer the loan to another CUSO member.” “The other thing it allows you to do is limit the liability,” Campbell said. “It's a way to broaden our services to the community.” Campbell said the CUSO will team with non-member credit unions outside its prime market areas, in effect giving Texas Business Lenders a statewide reach. But he said the core group should remain at five. Rogers said the credit unions explored a variety of options but found their mutual interests provided a good mix. All five of the credit unions are members of the Credit Union Legislative Coalition – an unusual association of 23 large Texas credit unions that lobby issues independent of the Texas Credit Union League. Community Resource's Thomas chairs the coalition. Rogers said coalition alliances help drive formation of the CUSO. “We're comfortable with working with each other,” he said. “We're able to spread the risk but only spread the risk. We can manage the risk better than a single credit union could.” Campbell couldn't immediately provide details on how many loans have been made through the CUSO or how many are in the pipeline. In Austin, said United Heritage President and CEO Buddy Schroeder, the CUSO has processed $9.9 million in business loans with another $745,000 in the pipeline. “We've done everything from a couple of million dollars in real-estate deals down to some simple $50,000 lines of credit,” Schroeder said. United Heritage has used the CUSO to finance buses for a church and is working with a minority-owned bakery looking to expand in Austin. All of the United Heritage's CUSO business has come from members walking into the lobby looking for a commercial leg up and from word-of-mouth, Schroeder said. “Under their parameters, probably the bakery would have a hard time with a bank,” he said. “It's a fairly well-established business. But (as an outside banker) you probably would have to get more comfortable with the business.” With the prospect of a CUSO that could operate across north, east and south Texas, United Heritage passed up a CUSO formed to make business member loans by Austin credit unions and opted for the statewide possibilities offered by Texas Business Lenders. It joined 12 other Texas credit unions in a CUSO formed in 1992 around a sub-prime auto lending program and withdrew in 1996. “It was a great program for years. But then it ran its course,” Schroeder said. “I think, like many credit unions, we had members approach us for member-business loans. A lot of them we were able to take care of with personal loans – with regular consumer-lending material. We just saw the demand for the business side as being a really great opportunity that we were letting slip away.” Rogers said he expects to compete with community banks in a market demanding full service across the spectrum of institutions. “Today, why would you put your deposits in our institutions if you're a small businessman and you don't have loans?” Rogers asked. “I'm not going to sit here and tell you that we've got everything figured out. But there are a lot of good things happening with credit unions, and we just believe that we're one of those things.” [email protected]