Religious-Based Lending

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One California-based credit union has so gotten religion when it comes to a niche commercial lending market that it has all but eliminated products typically associated with credit unions.

If there's a church or ministry building being built near where you live or work, there's a very strong likelihood Evangelical Christian Credit Union is behind the loan.

As ECCU's EVP Mark Johnson told a group of credit unions meeting here, "You may think you have the best job, sorry, I've got it. I get to do all the business lending I like to do and do it in a context I like, which is to help churches and ministries to be more effective."

But building ECCU into the effective lender it is today hasn't come without some work, not the least of which was first overhauling a lending operation that was doing $350 million annually on a structure meant to service a $100 million operation, according to Johnson, who accepted responsibility for that situation.

Little Consumer Lending

ECCU was founded in 1964 and has been doing business lending for the past 20 years, most actively for the past 13, the same time Johnson (who was previously on the board) has been with the CU. It funded its first participation in 1987. In the mid 1980s, ECCU moved from being a "plain vanilla" credit union doing consumer lending to Christian communities and moved to commercial lending. In 2000, it made a strategic decision to focus primarily on financial services for corporate members (while still supporting 3,500 field missionaries serving in more than 100 countries). It now does no consumer lending; members, for instance can't get a credit card from ECCU.

"We have some consumer members today, but we don't market to them. They have to be zealots to bank with us," he said.

It primarily makes loans to faith-based non-profit organizations and has a nationwide FOM serving organizations of all sizes.

ECCU offers real estate-secured loans, purchase construction, LTVs (average around 65% but will go up to 80%,) fixed and variable financing, ARMs adjusted quarterly and tied to LIBOR, and amortizations generally to 25 to 30 years, with maturities generally five years, although some go seven to 10 years.

'Opportunity-Rich Environment'

"We are in what we call an opportunity-rich environment," said Johnson. "We often say no, but one opportunity we got into last year was tax-exempt bond financing that requires a letter of credit, and we did about $100 million in that last year even though we didn't make any loans. But we do get some pretty significant fee income." ECCU uses WesCorp for the letter of credit.

ECCU has $1.8 billion in its portfolio, $1.1 billion in loans sold to 40-plus credit unions, although it retains the servicing. In 2001 it did $180 million in annual MBL origination volume, a figure that topped $800 million last year.

The loss history is outstanding, although it was forced to foreclose on two churches that later went on to redeem the loans. "Someday I'm sure we will take a loss," conceded Johnson.

Non-interest income (fees) now comprise more than one-third of the credit union's total income, meaning it isn't feeling the squeeze from tight margins. Its loan-to-share ratio is at approximately 135%, and it uses WesCorp for the liquidity tools it needs to operate at that type of position.

"We really believe the type of lending we do has eternal impact on people's lives, and that's all the preaching I'll do, but we try to hire people who feel that passion," he said.

"Knowing are market is what we're all about," he continued. "We ARE them. We share their values completely. We focus a lot on what is the value we deliver to the client. We've mostly developed the expertise because it's hard to hire it in. Retention has been significant for us; our average turnover has been about 6%, and at mid-manager and above, it's almost nonexistent. To be able to talk to the same clients over a long time is pretty significant."

ECCU has a technical writing services department that puts all the policies and practices in place with clarity. It seeks to push decisions down within the credit union, which means their won't always be agreement.

The credit union uses Connecticut-based Open Solutions, Inc. for its core solution.

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