Lake Michigan CU goal 100 million in business loans by 2013
Lake Michigan Credit Union has “plenty of capital” to fund its commercial lending business, which really only kicked in a little more than two years ago when it hired Mark Hoffhines as senior vice president, commercial lending.
Hoffhines said LMCU’s loans to businesses range from a few hundred thousand dollars to a million or more, and in some cases to as much as $10 million. Right now, he estimates the total member business loans are about $77 million, but adds, “we’re trying to get to $100 million by end of the year.”
Total capital is $258 million, and total assets are $2.6 billion.
Hoffhines said the lending environment in general is getting a little more active, although he isn’t sure there are enough businesses borrowing yet to support all the players on the banks’ side of the desk. What is changing is the searching that seems to be increasing by businesses that are “evaluating their relationships” with current lenders.
“They’re looking to find good suppliers,” said Hoffhines — although he added, “It’s happening in every sector, not just financial.”
Businesses are “assessing whether they are making money, whether it’s a good relationship” with each supplier for every need, and the result is that “there is a little bit of a reshuffling going on out there” between lenders and borrowers.
“We are getting a fair amount of referrals from CPAs and other customers these days,” he said.
One of the largest credit unions in the state with more than 192,000 members and 35 branch offices, LMCU was founded in 1933 as the Grand Rapids Teachers Credit Union by teacher Lloyd F. Hutt. Driven by the shortage of money during the Great Depression, 13 teachers pooled their money to fund it, and Hutt ran the credit union from his home until 1959 when it bought its first building on South Division Avenue. It had more than 1,000 members and more than $1 million in assets.
In 1971, with more than $10 million in assets, GRTCU began managing other credit unions, starting with Food Marketers, Health Care and Saint Mary's Hospital. Others followed, as credit unions throughout the Grand Rapids area began a series of consolidations.
In 2001, the managed credit unions (known as CU Financial Group) were consolidated into one credit union, Grand Rapids Teachers Credit Union. The name Lake Michigan Credit Union was adopted the following year, and the charter was extended to serve people throughout Kent, Ottawa, Muskegon and Allegan counties. In 2003, LMCU acquired Grand Shore Credit Union in Grand Haven.
In 2008, LMCU’s charter changed again to expand membership to people in 36 Michigan counties, and in 2010, Kalamazoo-based Citizens Credit Union merged into LMCU.
That scope provides LMCU management with a big picture of what the economy is doing on the western side of Michigan — and judging from their business loans traffic, “it’s mixed,” according to Hoffhines.
“Manufacturing seems a little busier this year than last,” he said. In other sectors of the economy, “you see some successes and you see some people struggling.”
Hoffhines said there are not yet enough people willing to risk any of their money, especially in regard to real estate.
“People are still managing” their existing debt and are “not stepping up and signing on the line for a lot of new stuff,” he said. “I think, in general, people are very conservative in signing up for new projects, new risks.”
Interest rates are still at “the low end of the rate cycle” and “holding very firm,” according to Hoffhines. He noted that the Federal Reserve Bank’s Operation Twist is continuing to push down the longer-term rates to where the prime rate is at 3.25 percent these days. In Operation Twist, the Fed is selling short-term government securities and buying longer-term Treasuries in an attempt to lower long-term interest rates. Operation Twist was extended in July to continue through the end of the year.
Long-term interest rates facing borrowers are “all over the board,” said Hoffhines, most are probably in the higher 3 and 4 percent range for the best customers. With the prime at 3.25, “a very, very good customer out there would still be asking for prime rate,” he added.
In regard to competition from commercial banks, Hoffhines said LMCU has benefitted from having “stayed very clean through this recession. The nice thing is, we don’t have a lot of the old issues dragging us down — real estate problems. We have a very strong record in past-dues and charge-offs in those areas.”
As for those would-be borrowers coming to LMCU, Hoffhines said he tells them to “treat us almost like an investor in your business. Educate us” about the company, and/or the investment strategy and where the borrower really wants to be in the future.
“The more we can really, honestly know about them, the better the job we can do in advising them,” he said.
“We are one of the few credit unions that is capable of doing all the things a customer is looking for from us. If they want approval” for a loan request, “we do it right here.” And he added LMCU also controls the closing on a loan; it does not have to be handled elsewhere.
“We want direct relationships” with business borrowers, he said. “We’re a little different than some of the others. I think we are looking for well-managed, well-positioned companies, and we’re trying to help them be successful.”
Hoffhines said LMCU may be “unique” in the credit union industry because it is “hiring senior-level talent” for the commercial loan division, at each stage of that lending process.