Credit unions increase commercial lendingBanks fight lending cap increases, citing unfairness and risk
Some of Pennsylvania's larger credit unions are doing more commercial lending, including for big development projects. But how much they can do still is limited by federal caps, institution size and focus, executives said.
"We're nowhere near the huge megabanks, but we're able to do midsize and small commercial projects," said Bob Marquette, president and CEO of Cumberland County-based Members 1st Federal Credit Union.
The company is unapologetic about its status as the credit union with the largest commercial loan portfolio in the state and the 21st largest in the country based on dollar figures,Marquette said. As of February it had $284 million in business lending under its management compared with total assets of $2.2 billion, he said.
Lower Allen Township-based Members 1st has been doing commercial lending for about 10 years, and it's grown rapidly in that time,Marquette said. Originally, it capped the loans at $5 million. Today, the total loan can be a percentage of a company's assets. The credit union's largest project to date was an $11 million refinancing for a shopping center.
Members 1st also recently hired Omar Shute to be its vice president of business lending. Shute is the former executive director and president of Carlisle-based Cumberland Area Economic Development Corp.
"We're letting the public know we do commercial loans, and we do them well," Marquette said.
Only about 18 percent of credit unions statewide do business lending to begin with, said Diane Powell, a spokeswoman for the Susquehanna Township-based Pennsylvania Credit Union Association. It represents 526 credit unions in the state with assets of $35.6 billion.
Mostly, credit unions offer small-business loans to members, she said. Because many credit unions are small institutions, they generally stay away from large commercial projects because those would eat up the business lending cap, leaving less room to lend to a small business to buy a truck for lawn maintenance.
"From a risk standpoint, you never want all your eggs in one basket," Powell said.
However, the credit unions doing business and commercial lending are overwhelmed with requests, she said. That's part of the reason credit union advocacy groups are pushing for federal changes to the lending caps, which now stand at 12.25 percent of total assets.
A bill by Colorado Sen. Mark Udall would expand the cap to 27.5 percent of total assets, allowing credit unions to do more business lending. The bill was offered as a companion amendment to the bipartisan JOBS Act that President Barack Obama signed on April 5 to loosen regulation on small and midsize companies, including public companies and startups.
The amendment was removed from the JOBS Act, but it could be considered separately, according to Udall's website. That's because Senate Majority Leader Harry Reid promised a vote on the bill either way, said Keith Leggett, vice president and senior economist with the American Bankers Association in Washington,D.C.
The bill and lending cap increase don't sit well with banks, he said. It gives aggressive credit unions more wiggle room to pursue risky deals using their tax-exempt status to the detriment of banks, he said. Expansion of business lending by credit unions moves them away from their intended focus of lending to consumers of modest means, Leggett said.
Credit unions do not see it the same way.
"We don't understand why Congress won't pass that bill,"Marquette said. "They'll approve bills that give $250 billion to banks to entice them to increase commercial lending."
For many smaller credit unions, business lending is second to their consumer financing, but they still see a need for their colleagues to help businesses, too, Powell said.
However, for those doing little business lending, raising the cap doesn't have a lot of impact because the credit unions are well below it. That might be difficult to believe coming from the Pennsylvania State Employees Credit Union, or PSECU, the state's largest credit union with $4 billion in assets.
"We're not particularly big on commercial lending," President Greg Smith said. "I joke we're not even small-business lending; we're micro-business lending."
The average business loan to PSECU members is about $10,000, he said. That's enough for the small business owner to buy a truck or some other small expense, he said. Even regulators don't consider that business lending for official purposes because it's less than $50,000, he said.
Although it's hard to fathom the largest credit union in the state does almost no large business lending, there's a simple reason for that, Smith said.
"Our branchless model doesn't give us the boots on the ground that would support the best practices associated with business lending," he said.
That offers a general glimpse into how credit unions operate and dispels notions that they're taking on risk by lending to businesses, Powell said.
"Credit unions are very conservative to begin with," she said. "They're not out there funding speculation."