BURLINGTON, Vt.-After eight years in operation, the last six profitable, Northeast Member Business Services has announced plans to shut down due in part to what it perceives is a changing member business lending (MBL) regulatory landscape.
The business lending CUSO, owned by six credit unions, decided it will begin winding down operations and shut down sometime in 2013, and distribute capital to its owners. CEO Scott Anderson said a primary reason is that the CUSO has accomplished its mission of guiding its six owners to become proficient in MBL, but also because regulators are insisting that credit unions involved with MBL demonstrate more in-house knowledge.
"We spotted the trend of regulators asking for more in-house expertise, and we said we think this is where things are going," said Anderson. "We think the MBL world will look a lot different five years from now than it did 10 years ago. We do not disagree with what the regulators are saying. Just like any natural process, things change."
Anderson explained that when MBL CUSOs started coming into existence in greater number eight to 10 years ago, regulators often suggested credit unions get involved with a CUSO and leverage the expertise. Today, however, that situation has reversed itself somewhat, with regulators still lauding the value of partnering with CUSOs, but also insisting they not become completely dependent on outside organizations, shared Anderson.
Still, reiterated Anderson, what led to the final decision for Northeast to wind things down is that its six owners are now doing well with their own member business lending lending: $892-million Workers CU, Fitchburg, N.H.; $790-million RTN FCU, Waltham, N.H.; $1.1-billion Metro CU, Chelsea, N.H.; $1.9-billion HarborOne CU, Brockton, Mass.; $219-million Westerly Community CU, Westerly, R.I., and $332-million Heritage Family CU, Rutland, Vt.
Others Map Alternate Plans
Anderson said Northeast is profitable and well capitalized, with $2,625,000 of funded equity, and that the six owners are sound financially, with over $4 billion in aggregate assets and more than $400 million in aggregate equity with below-average MBL delinquencies.
Also referred to as Northeast CUSO, the organization also serves 14 other CU partners who use the CUSO but are not owners. Anderson said they all have alternative plans and that Northeast will provide regular services and transition support for some time to give them a "glide path to wherever they wish to go."
Anderson acknowledged that larger credit unions have more options than smaller CUs when it comes to managing MBL and following regulators' direction to get more expertise in-house.
"If you have $100 million in assets you can have at best, due to the cap, only $12.25 million in member business loans, which might make it difficult to support the kind of team you need," he said. "Now if you have $500 million to $700 million in assets it can make sense to have a team that costs you $500,000 a year. Say, 'OK. We have plenty of margin and we can afford that because MBL is good business for us.'"
No matter if the CU leans more toward in-house expertise or not, Anderson believes prudent and careful MBL practices lead to success, including being cautious with loan participations. "How often do you see a credit union get involved with a participation outside its geographic area and not have a true understanding of what it has invested in?"
Anderson also thinks a greater number of smaller, diversified loans can keep the CU and CUSO strong. "We have done well because we have closed a lot of small loans. Northeast is not a large real estate loan shop. We have processed $1 billion in loans, and most are $100,000 and less. Just a lot of diverse loans and that model proved out to be a pretty good one."
Northeast has two offices, with headquarters in Keene, N.H. It has 11 employees.
For info: Northeast CUSO: nembs.com
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