Sam McSorley, chief commercial officer, GreenState Credit Union and Joe Hearn, president and CEO, Dupaco Credit Union.
Sam McSorley, chief commercial officer, GreenState Credit Union and Joe Hearn, president and CEO, Dupaco Credit Union.

A handful of Iowa-based credit unions — the five largest in the state by asset size — are driving a significant increase in business lending activity among credit unions in the state. Statewide, member business loans by credit unions now total more than $4.1 billion in outstanding loans, more than double the balance four years ago. 

Over the past decade, the volume of business lending by Iowa credit unions has increased even more dramatically. At the end of 2009, as the Business Record reported on this topic, credit unions’ business loan portfolios collectively totaled less than $450 million — one-tenth of the current portfolio. 

Compared with banks, however, Iowa credit unions’ total share of business lending represents less than 8% of all business loans made, according to the Iowa Credit Union League. 

Since 1998, credit unions nationwide have been subject to a cap on business lending that limits their business loan portfolios to 12.25% of their assets, unless they meet an exemption as a low-income designated credit union, meaning a majority of its members live in low-income areas. Credit unions have been seeking relief from Congress for years to raise or remove the cap. 

The restrictions, part of the Credit Union Membership Access Act enacted by Congress in 1998, are “intended to ensure that credit unions continue to fulfill their specified mission of meeting the credit and savings needs of consumers, especially persons of modest means, through an emphasis on consumer rather than business loans,” according to a summary of that legislation.  

Iowa’s five largest credit unions account for more than 90% of the total business loan portfolio among credit unions, led by GreenState Credit Union. By portfolio size, the next-largest business lenders are Veridian, Dupaco Community, Collins Community and Community 1st credit unions. 

Nationwide, credit unions originated a total of $41.9 billion in loans in 2021, an increase of nearly 40% over 2020 and 70% higher than annual loans originated in 2019, according to the Credit Union Times.

Based in North Liberty, GreenState is the largest credit union in Iowa and at year-end held nearly $2.27 billion in outstanding business loans — making up more than half the entire $4.1 billion in credit union member business loans statewide. GreenState is not subject to the federal business lending cap because it meets the low-income exemption. 

In 2020, Greenstate was the largest producer among all U.S. credit unions of commercial real estate loans, originating $587 million in new loans, according to a Credit Union Times article. That was a 56% increase from 2019.

In terms of numbers of loans, the largest originator of member business loans in Iowa last year was Dubuque-based Dupaco Community Credit Union, which originated 2,257 business loans. That number made up 63% of the loans originated by the five credit unions with the largest outstanding business loan portfolios in 2021. 

By portfolio size, Dupaco is the third-largest member business loan provider, with $468.2 million in business loans outstanding at year-end. Dupaco began making business loans before 1998 and was grandfathered in as exempt from the 12.25% lending cap. 

Founded in 1948 primarily to serve Iowans working in the meatpacking industry, Dupaco began providing small-business loans several decades ago in response to shifting needs, said Joe Hearn, president and CEO of Dupaco. 

“When a lot of those companies started laying off workers in the early 1980s, a lot of those workers said, ‘Hey, I don’t want to move from my community – help me start a business now,’ ” he said. “We did dump truck loans, or loans for buying a duplex, and those were business loans. So that’s how we got introduced into it in the early 1980s, because there was a need and we had to serve those members.” 

Dave Klavitter, chief marketing officer for Dupaco, said the credit union’s median business loan amount is about $40,000. “We’re about helping members wherever they are [financially],” he said. “They start with us as consumers and then they say, ‘Hey, I want to start this little side business.’ ” 

Responding to members’ needs 

Credit unions in Iowa hold about 7.6% of all business loans in the state, compared with 92.4% by banks, according to an analysis by the Iowa Credit Union League. In total, just over 80% of Iowa credit unions’ loans are consumer loans, while 18.6% are nonagricultural commercial loans. 

“We’ve got 81 credit unions in our state, and if you look at last year, just about half of those reported making member business loans,” said Justin Hupfner, CEO of PolicyWorks, the public relations arm of the Iowa Credit Union League. Commercial lending is a comparatively new business line for many credit unions, he said. 

“I can recall back in the early 2000s when we had our credit unions coming to the League and saying, ‘Hey, we’re starting to get approached by members for business loans,’ and they were generally our larger credit unions at the time. And they didn’t have the expertise on staff to underwrite those kinds of loans.” 

In response to that issue, the Iowa Credit Union League in 2005 launched Community Business Lenders, a credit union service organization whose mission is to underwrite loans so that smaller credit unions can participate in larger loans that would otherwise be too large to take on individually.  

A majority of member business loans being made by credit unions are for less than $100,000, Hupfner said. According to a survey of its members conducted in 2019, two-thirds of member business loan originations by Iowa credit unions were for loans for less than a six-figure amount. 

“From our perspective, competition is certainly good for every sector of small businesses, so we’re excited by the fact that our credit unions continue to do [business lending] and that our members continue to look to us for that solution,” he said. 

Commercial real estate lending is the biggest driver of business loan growth for GreenState, which in addition to Iowa has a service area extending into contiguous counties in four states — Illinois, Wisconsin, Nebraska and South Dakota. 

Strong relationships, organic and M&A growth 

Currently, GreenState’s business loan portfolio stands at more than

$2.5 billion, said Sam McSorley, GreenState’s chief commercial officer. 

“While it is a large portfolio compared to other credit unions in Iowa, banks control a vast majority of commercial loans in the state,” McSorley said. “But we are pleased with the growth of our commercial lending portfolio and would attribute that growth to pricing and personal service. We would credit our growth in retail and mortgage lending to those things as well.” 

The credit union has built strong relationships with local real estate developers, she added. 

“Through word-of-mouth, our department has seen tremendous organic growth over the years,” McSorley said. “Our strong culture has attracted top talent to our department, and that helps us serve our members. In addition to staff, we have added services like insurance, wealth management and treasury management to support the needs of our commercial borrowers.” 

In addition to organic growth, GreenState has aggressively expanded through acquisitions. In February 2020, the credit union acquired the seven branches of Fort Dodge-based First American Bank, including five Greater Des Moines branches. The bank acquisition was initially blocked by Iowa’s banking superintendent, who approved it to avoid a lengthy lawsuit but vowed to “quickly deny” any future bank acquisitions in Iowa.  

Subsequently, in May 2021, GreenState announced plans to acquire Illinois-based Oxford Bank & Trust as well as Premier Bank, based in Omaha. In October, GreenState announced plans to acquire Midwest Community Bank and its subsidiary Blueleaf Lending LLC, which will expand GreenState’s branch footprint into the Chicago suburbs.

In a move to accommodate further business lending growth, GreenState recently entered into a partnership with Built Technologies, a Nashville, Tenn.-based software company, to modernize its construction loan servicing process and streamline its portfolio management. 

“Construction is and has been a large contributing factor to our growth over the years,” McSorley said. “Built is a program that will hopefully further enhance the experience for our members and our staff by streamlining the construction lending process. Borrowers are always looking for easier ways to access funds and we are always looking to be more efficient.” 

Although it is not subject to the 12.25% business lending cap, McSorley said GreenState still seeks to maintain portfolio diversity between its retail, real estate and commercial loans, and if the need arises, GreenState looks to other credit unions and community banks for loan participations.