Though they face serious challenges in bringing in business-lending experts, U.S. credit unions continue to fill their portfolios with commercial loans.
Historically, one major obstacle for some credit unions trying to grow their commercial book has been a regulatory restriction. Under current law, credit unions are restricted from lending more than 12.25% of total assets to member businesses.
The other large challenge has been finding the right personnel, and that may be a bigger issue than ever. Some credit unions are finding that it's better to promote from within than to hire an experienced lender, even if it means spending more time on training.
"Trying to place a commercial lender over the course of last year has been like pulling teeth," said B.J. Berrettini, executive director for the search firm AJ Consultants.
Nevertheless, commercial loans at federally insured credit unions increased $26.4 billion, or 25%, on a year-over-year basis, to $132.2 billion in the third quarter of 2022, according to new data from the National Credit Union Administration.
Chief lending officers said their success hinges on talent retention and training.
Wright-Patt Credit Union in Beavercreek, Ohio, had $521.8 million in commercial loans on its books at the end of the third quarter, a 35% year-over-year increase, according to call report data.
Eric Bugger, chief lending officer for the $7.6 billion-asset Wright-Patt, said it has been difficult to attract outside talent, especially solid performers. The credit union has found much more value in taking some of its current employees who are high-potential candidates and teaching them about commercial services, he said.
"We have a few recent success stories like this in our commercial lending area and first mortgage area," he said. "What we've found is that the training cycle is a little longer, but we don't have to teach them things like culture and how much we value exceptional member service. If we pick the right person, they hit the ground running right after training and they quickly start building the relationships that are so important in commercial lending."
That strategy might be the only option for some institutions.
Cameron Boyd, managing partner of the financial services practice at recruitment firm Smith & Wilkinson, said entrenched and successful commercial bankers who feel fairly compensated are unlikely to change companies for a small bump in pay.
"The good ones won't," he said. "They're hitting their goal by June and playing a lot of golf."
The lenders willing to move are usually those that didn't hit their goals and are on performance improvement plans, Boyd said.
He added that many companies are looking for lenders with an established book of business — but the candidates' employers often take steps to prevent clients from following them to a new job.
"I've had many chief lenders or presidents tell me that when a lender leaves, they go into his or her portfolio and reprice everything so low that those customers won't walk," he said. "So the best path for attracting commercial bankers is for community institutions to grow their own."
Jeff Ernst, chief lending officer for Members 1st Federal Credit Union in Enola, Pennsylvania, agrees.
The $6.8 billion-asset institution has spent a lot of time and resources in the past year working hard on retaining talent so that it doesn't have to enter the "challenging world" of commercial hiring, Ernst said.
"So far, we have been either lucky or good, as we have held on to our lenders," he said.
Members 1st did add one new lender in 2022 as part of its expansion into Pennsylvania's Lehigh Valley. Such a move often seems to make it a bit easier to attract quality candidates, as people are often attracted to a new company in the market allowing them to make a fresh start, he said.
Members 1st had $741.3 million in commercial loans on its books at the end of the third quarter, a 20% increase compared to a year earlier.
"We have attracted talent in the past by being a good competitor, and lenders for other banks want to be part of our company," Ernst said. "We have been lucky to hold onto our folks so far. We will see how things go as we enter an expected challenging 2023."
Bruce Kershner, president of Kershner & Co., an executive search firm focused on financial institutions, said his theory has always been that banks should take a lesson from financial advisors when it comes to poaching lenders.
When a broker is recruited away, the new firm will pay him or her as much as one to one-and-a-half times their annual production up front, he said. The broker then has to sign a multiple-year contract or must pay the advance back.
"I realize banks won't or can't pay that amount, but there has to be something creative they can do," he said.
Berrettini from AJ Consultants said that, regardless of the strategy, the search for commercial lenders is as challenging as ever.
"I'm paid to look for a needle in a haystack of needles. However, it's almost as if they're looking for a needle that doesn't exist in some cases," he said.
