Credit Unions

Moderated by Scott Simpson, president of the Utah Credit Union Association

July 9, 2013

NORTON: And yet we seem to be ahead of the curve this time.

HOFELING: Not going into it. Coming out maybe.

LONDON: From an economic standpoint, we have a lot of features here that help keep employment levels where they need to be. Look at City Creek, look at the projects that are going in from the government side—I don’t think from an economic or from an unemployment perspective we got hit nearly as bad as the rest of the country. So we’re going to come out of this a little bit faster.

One thing I’ll say with Jim’s comment, though, is I do think we trailed behind that recession. I don’t know if this was a plus or a minus, but unfortunately, we had time for the regulator to catch up.

VANAUSDEL: The thing we battle with a little bit is the conservative nature of Utah. Our loan production is very high, but our loan paydowns seem to be even higher. So we’re doing as many loans as we’ve ever done, but people are getting out of debt. That’s been a real challenge.

PAYNE: How much of that is people truly getting out of debt and how much of that is churning from around the table? Because I had someone in just the other day getting a payoff quote—they were paying mine off and taking it to someone else.

LUND: A lot of this churn is within our own institutions. With record low rates on the mortgage side, we’ve seen a lot of our members refinancing their mortgage multiple times over the last few years, and then they would pay off their second mortgage or their car loan and combine it into the mortgage. So we really are churning our own loans.

HOFELING: That brings up a good point, too. One thing we have learned through the recession is to not have all your eggs in one basket. We’ve seen sister financial institutions that had 60, 70 percent in mortgage loans. So when it hit, it killed them. Most of you are around the table because you didn’t do that. Most of you have a certain percentage of mortgage, a certain percentage in autos, a certain percentage in signature loans, and you balanced it out. Maybe that was purposeful or just happened to be the way the market went. But it’s actually been a benefit because we haven’t had to rely on just one industry or one type of product.

Business lending is a perfect example. Go back 10 years ago. How many of us were doing business lending? Now it’s become for many, myself included, one of your products that is readily available and used quite well by your membership.

Business lending, and the SBA world in particular, is an area we didn’t have access to several years ago. We now do. How is that being leveraged? How is the business lending environment for credit unions in Utah right now?

MOODY: We’ve been doing business lending since I’ve been with the credit union for 29 years, so it’s been a staple certainly for our organization. SBA has just added to the mix and provided opportunities.

LUND: The beginning of credit unions in the country was business loans. It was small, independent business people that needed to borrow funds.

A fallacy perpetrated by those who are not friendly to the cooperative model is that somehow business lending is a new reality for credit unions. And actually, its birth was in the agricultural business loan.

MOODY: As a percentage of our assets, we have fewer commercial loans today than we did 30 years ago.

LUND: We’re regulated to only be able to do up to 12.25 percent of our assets in business loans. So there is a limitation there that we all live with.

NIELSEN: When things started going bad in the economy, a lot of business lending dried up. That’s the time we were doing the most volume; we had the most demand there. We didn’t stop lending at that point. We were out there doing loans. And the problem was, at what point do you get capped out and you’re no longer going forward?

Right now we’re seeing increased competition in business lending. It is definitely a very driving area and there’s a lot of demand out there. And the rates are fantastic for wanting to do a business loan.

WAHLEN: Because the business lending area is still underserved, there’s a lot of demand. Our pipelines are full with business loans right now. Small businesses need capital. SBA 7(a) revolvers are a great source to provide capital, along with 504s on the commercial real estate side. The certified development corporations that service the SBA loans do an excellent job and are a hidden jewel in our community. And they’re also a nonprofit that helps serve and provide that funding in the business lending area.

HOFELING: Darin, you’re right about the business loans. When I first started at the credit union, we had two or three loans on the books that were either on horses or cows. And I never thought of it as a business loan, but it was a collateral loan to the farmers. So we’ve done business loans forever, we just didn’t label it as a business loan. We were helping Harry, the farmer, and never thought of him as a business.

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