The seven Florida credit unions that recently formed a credit union service organization to manage their small-business portfolios are small-time players in commercial lending, but the move has some Sunshine State community banks worried.
The bankers fear that Cypress Group LLC, which was founded eight months ago, will begin brokering large loan participations, thus posing a competitive threat to banks in their bread-and-butter line of business.
The seven founders did hire a commercial lender, Kevin Dion, away from SunTrust Banks Inc. to run Cypress. However, Larry Scott, the chairman of Cypress' board, said the jointly owned subsidiary would focus mostly on underwriting, loan documentation, portfolio maintenance, and other back-room operations for each credit union - not structuring deals.
Mr. Scott, the chief executive officer of the $589 million-asset Campus USA Credit Union in Gainesville, did not rule out the kind of loan participations bankers fear, but Cypress has yet to put together such a deal.
Its other founder-owners are Central Florida Educators Credit Union in Orlando, Educational Community Credit Union in Jacksonville, MacDill Federal Credit Union in Tampa, Pen Air Credit Union in Pensacola, Space Coast Credit Union in Melbourne, and Tropical Financial Credit Union in Miami.
MacDill, with $1.6 billion of assets, is the largest of the seven. As a group, they have $6.3 billion. That makes Cypress one of the largest commercial-lending-related credit union service organizations in existence.
The credit unions started talking about creating Cypress in September 2003, immediately after the National Credit Union Administration updated its business-lending rules to make it easier for credit unions to purchase loan participations from credit union service organizations.
Credit unions can now apply to the NCUA for permission to exceed the congressionally mandated commercial-loan portfolio cap of 12.25% of total assets - as long as they purchase whole loans or participations from other credit unions, or participations from a credit union service organization.
Mr. Scott insisted that he and his colleagues formed Cypress because none of them had the skills or the money to set up separate business-lending departments.
"We really saw it as a cost savings, since we did not have the expertise and all of us needed someone to drive the back office," he said.
Cypress cannot originate loans on its own, but that is small comfort for bankers, who worry that it will begin brokering syndicated loans, putting its seven founders in the market for larger, more profitable deals.
"CUSOs are being set up to allow credit unions to make larger business loans than they can make on their own," said Keith Leggett, an economist at the American Bankers Association. "And because of credit unions' tax-exempt status, I expect them to squeeze rates to get into the market of banks."
However, Mr. Dion said credit unions serve a different clientele. Instead of catering to established businesses, credit unions, by and large, serve self-employed individuals, which banks largely ignore, he said.
Mr. Scott said that Campus books about $1 million in business loans a month and about 3% of its overall loan business involves commercial lending. These low numbers show that banks have no need worry about Cypress or any other credit union service organization involved in business lending, he said.
"Banks do a wonderful job and will continue to dominate" the market, he said. "We are just trying to find niches to serve our members."
