When Andy Marshall became chief operating officer of Interra Credit Union ($877.0M, Goshen, IN) in 2014, the credit union had a low level of credit risk in its portfolio, a loan-to-share ratio of 60%, and loan growth of 3-6%.
Although the Indiana credit union had a strong loan portfolio — at year-end 2014 its delinquency ratio was 0.35% and its net charge-off ratio was 0.12% — it was struggling to keep pace with deposit growth. What’s more, its loan income was dependent on agriculture real estate and consumer direct auto.
CU QUICK FACTS
Interra Credit Union
HQ: Goshen, IN
Data as of 09.30.16
12-MO SHARE GROWTH: 16.0%
12-MO LOAN GROWTH: 23.9%
So Marshall reimagined Interra’s lending strategy. On Jan. 1, 2015, Interra began restructuring its lending department and separated what was once a single, concentrated department into divisions for agribusiness, business services, indirect services, residential mortgage, and direct retail lending.
Today, Interra’s loan-to-share ratio is 90.7%, compared with the 80.2% for credit unions with $500 million to $1 billion in assets, 83.2% for credit unions in Indiana, and 78.6% for the entire industry, according to data from Callahan & Associates. Its year-over-year loan growth of 23.9% as of third quarter 2016 is plenty strong enough to keep up with its 16.0% YOY share growth. And its delinquency ratio of 0.39% is still well below the 0.70%, 0.54%, and 0.77%, respectively, for credit unions in Interra’s asset band, the state, and the country.
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A New Foundation
Back in 2015, Marshall wanted to diversify Interra’s lending strategy so the credit union would not be subject to a debilitating concentration of income. To do this, he moved Interra away from a central lifeline and began building proficiency in five core business lines.
“For Interra, it was all about creating a modern, scalable, and high-level growth-orientated environment,” Marshall says. “Modern in the light of better using our technology and scaling it for the large levels of growth we were anticipating. We took time to work through a multi-phase plan of re-launching our lending with our staff as well as our member and prospective member base.”
Andy Marshall, COO, Interra Credit Union
The reorganization not only provided cleaner reporting but also a more comprehensive structure for Interra’s senior management team.
The credit union challenged five vice presidents to assess their newly formed divisions and, with some guidance and direction, take the lead in their respective areas. They evaluated processes, people, and sales approaches to develop a strategy that was broad enough for the next five years.
Transitioning from retail to business helped Chris Smith, Interra’s vice president of treasury management, realize management needed to evaluate all of the credit union’s member offerings and internal processes.
Chris Smith, VP Treasury Management, Interra Credit Union
“We learned that to serve business members to the fullest potential, retail-based products and services are not effective,” Smith says. “We’ve spent the past two years developing and launching a true business program. We’ve added business checking accounts, a business debit card, a second business credit card, commercial online banking to include business ACH, remote deposit capture, business bill pay, and online wires.”
For Mike Blosser, Interra’s vice president of business services, the biggest process that needed adjusting was the flow of work from lender to specialist, back to lender, to closing.
“The first year of the realignment was a huge learning curve for our whole team as there was a lot to learn, including new product offerings, processes, and what job responsibilities fit with which employees,” Blosser says.
Mike Blosser, VP Business Services, Interra Credit Union
David Dekker, Interra’s senior vice president of consumer services, found that centralizing Interra’s consumer loan decisioning allowed his team to be more consistent and allowed front-line staff to better look for cross-sell opportunities that would benefit members.
“I took [the re-org] as a personal challenge to evaluate what people were doing with their job,” says Dekker. “I was able to watch people manually process loans and then once we automated it, sit down and stopwatch how long and how much time it saved them. I was able to confidently go to my leaders and give them accurate time savings.”
Callahan & Associates surveyed 333 credit unions to learn about automated decisioning practices in the consumer lending portfolio. See the results in, "A Brief Look At Trends In Automated Decisioning."
Dekker says the restructure also allowed him to focus efforts on building relationships with dealer partners as well as credit card promotions and student lending.
This transformation has attributed to outstanding levels of growth in each business line.
New Success. New Challenges.
Since the reorg, Interra’s loan portfolio has grown from $424.0 million to $710.6 million; that’s an increase of $286 million in loans outstanding in two years.
David Dekker, SVP Consumer Services, Interra Credit Union
“With the large amount of growth, we continue to work on better credit analytics, backtesting, stress testing, and various other components in our risk management program,” says COO Marshall. “The process of developing a strong credit risk management area becomes and will continue to be a vitally important component of a diverse asset makeup like we have.”
Additionally, Interra has encountered technology challenges regarding the servicing and tracking for commercial loans, which is important because the credit union has 43% of its assets tied up in commercial and agricultural lending, according to Interra.
“We have had to consistently retool and rethink how we get our core system and vendors to work together to provide the service to our members that is necessary in that space,” Marshall says.
That portion of the loan portfolio is a work in progress, and those employees at the credit union stress the “in progress” part.
“The running joke upon forming the commercial lending group was to give it six months and it will get easier,” Blosser says. “We used that statement every month for the first year. I would fully anticipate using this phrase for the next six to 12 months as we take the next step in building our division with new software.”
If he could do anything differently, Marshall says he would have delved deeper in the early stages of the reorg.
“At the onset of the reorganization I would complete a deeper discovery assessment of our core loan servicing, using a cross-functional team of lending and technology leaders,” he says. “Then from that assessment develop a one to two-year plan of how we could break down and re-create a more aligned core servicing process and system.”
Overall, senior management agrees that things are proceeding well.
“At this point we are settled in as a team and everyone knows their role,” treasury manager Smith says. “Looking back, it’s hard to believe how far we’ve come in only two years.”
“This transformation has attributed to outstanding levels of growth in each business line,” the COO says. “We have created a culture of growth-orientated behaviors that will serve us for years to come.”