COMPTON, Calif.-The two concepts don't naturally go together: a low-income neighborhood and business lending.
Even more unusual: the lending part of the equation is being done by a small credit union that is using outbound phone calls to drum up more business-and the credit union is seeking deposits to help underwrite that loan growth.
Melia Keller, CEO of $24-million, 5,700-member Mid Cities CU, acknowledges business lending is rare at a credit union her size. Mid Cities originally was a schools-based CU but converted to a community charter in 2008.
"We serve predominantly low-income areas so we have products tailored to the community, such as a payday lending alternative," Keller said. "But we want to help the local economy so we launched small business accounts in spring 2010 and began offering business loans in January of this year."
Mid Cities closed its first business loan earlier this summer. It is an SBA-approved lender and participates in a California financial institutions program that promotes small business lending.
Business accounts are run with the help of Member Business Services, a San Bernardino, Calif.-based CUSO which offers special pricing to Shapiro Group CUs (those with $45 million or less in assets). Keller said her plan is to build her own knowledge base about business accounts while Mid Cities taps the expertise of Member Business Services before eventually striking out on its own.
Currently, Member Business Services does the underwriting, while putting staffers at Mid Cities through classes on underwriting criteria and other related issues. Mid Cities carries the loans on its books.
"Member Business Services helped us with marketing to our own members first before we did general marketing," Keller recalled. "When we did our first business loan it was for a logistics company. After we made the loan we also ended up refinancing the company's vehicles. Business loans can be very profitable, especially with loss of income in other areas."
Asked if Mid Cities is worried about managing growth-as so many CUs are by discouraging deposits-Keller responded by noting she has the opposite issue.
"Our deposits have been dropping. In our area we don't have the same problem as at other credit unions. We are trying to encourage deposits because we have so many loans," she said. "We are doing an outbound phone sales campaign to bolster business lending, which is very unusual for credit unions."
Mid Cities has "gone back and forth" on its balance sheet, she said. The CU was profitable in the first quarter of this year, but then got hit with delinquencies and fraud. "Those are the biggest items on our agenda, and we are going after business lending to bring in more income," Keller said. "The schools here are experiencing layoffs, so we have issues with that, and we have an older membership. There are some unique situations we are dealing with."
Compliance Officer? Everyone
Mid Cities is privately insured through American Share Insurance, Dublin, Ohio. According to information on ASI's Web site, Mid Cities had a net loss of $147,210 for the first half of this year as it charged off $199,319 in loans. For 2010 it posted a loss of $376,001 as it put $336,400 into its provision for loan losses.
Despite the growth into business lending, there are numerous challenges in operating a small credit union, Keller acknowledged. From her two years' experience, two of the biggest issues are related: economies of scale and compliance.
"We have fewer people but still have to comply with the same things larger credit unions do," she said. "Add to that it is difficult to hire top-notch talent because we don't have the same resources. We look for people who are young, have energy and have the ability to learn quickly."
Instead of having one compliance officer all employees are acting as compliance officers, she continued. Everyone is responsible for his or her own area, and Keller oversees everything.
Help comes in the form of free compliance audits that CUNA offers with membership, "which has been great."
"We have to keep up with everything because we don't have a choice," she said. "The California Credit Union League's InfoSight service is a free compliance resource Web site. When the SAFE Act came out that was the first place I went to. It is a tremendous help to small credit unions, because it offers sample policies, overviews of new regulations and other resources."
Another resource from the California CU League is an agreement with the Law Offices of Thomas H. Wolfe. The firm offers discounted prices for Shapiro CUs and includes services such as review of vendor contracts and help with personnel issues, member disputes and other legal matters.
Marketing at a small CU is challenging, she said, for the obvious budgetary reasons that are compounded by being in an expensive media market. For those reasons, Keller currently is working on taking advantage of electronic communications. This quarter Mid Cities had its first electronic marketing campaign for a 2.99% balance transfer promotion.
The credit union uses Constant Contact, which Keller said is a "good resource" for marketing on a budget, Keller reported, especially because credit unions get the less-expensive non-profit rate. The company offers an e-mail marketing system, which includes alerts on which addresses are dead, which members opened the e-mail and which ones forwarded it.
"Constant Contact also allows us to do our newsletters," she said. "We have an info@ address for members to respond to."
As for the positives of being at a small CU: "As CEO I know everybody," Keller said. "We work well together and are a tight-knit family. The staff meets every Friday morning and I ask for feedback on what members are asking for. At a smaller credit union the CEO interacts with the staff on a weekly basis and keeps close contact with the membership. We have an 'Ask the CEO' button on our Web site, which I don't think a lot of larger credit union CEOs would want."
Keller will be attending the California CU League's Annual Meeting and Convention in San Diego this week through a grant from the RMJ Foundation. Her branch manager is receiving a Tomorrow's Star Award and is getting a grant from the league.