State Employees’ Credit Union ($31.2B, Raleigh, NC) didn’t always operate with a decentralized lending network, although you’d have to go back nearly 20 years to find that time. Back then, the only type of loan the credit union wouldn’t originate in its branches was a mortgage. Today, SECU is 100% decentralized.
“Our credit union believes in personal member service,” says Mark Coburn, the credit union’s senior vice president of lending development.
That’s not to say other credit unions don’t also focus on member service, but SECU is taking a different stance on what that means in terms of lending.
CU QUICK FACTS
State employees' credit union
Data as of 09.30.15
HQ: Raleigh, NC
12-MO SHARE GROWTH: 7.04%
12-MO LOAN GROWTH: 10.13%
“The bread and butter of our model and our competitive advantage is having experienced lenders in every branch,” Coburn says.
That decentralized model, however, can prove complex and inefficient. Here’s how SECU balances those challenges with the benefits it provides members.
How Does SECU Decentralize?
The credit union has 255 branches stretching across the state of North Carolina. This puts the credit union at No. 2 nationally for number of branches, second only to Navy Federal’s 269. In those branches, SECU houses close to 1,800 total loan originators. Of SECU’s 1,800 total originators, 1,200 have lending limits at this time, according to Coburn.
SECU has developed four Lending Limit Tiers that include various dollar amounts of approval limits for each product category, Coburn says, such as mortgage, vehicle, signature, and others. Tier 4 is the maximum lending amount for each lending category.
Originators without lending limits are involved in the lending function but do not make final approval or denial decisions until they obtain lending limits.
Loan originators each have a set dollar lending limit per person per product. The maximum any one originator can lend is $1 million, and at least one originator at each branch can lend at this limit. Originators earn higher limits based on experience, years with the credit union, and lending record. Every branch offers every product and every originator can make any kind of loan, although the popularity of loans in any one branch is dictated by local appetites.
These originators don’t make loans decisions unilaterally, however, as there are a few levels of leadership to help guide the process.
48 district vice presidents monitor product administration and performance of 207 branch vice presidents — what the credit union calls its branch managers.
In addition, district vice presidents track branch-level originations and collections in three to five branches and set lending limits for originators in their districts. They also oversee branch managers as well as manage a branch themselves. They answer to the executive vice president of branch operations, located in the credit union’s administration building, and the president.
“They are the one that run the show for lending in their district,” Coburn says.
Centralized lending models have a few advantages over their counterparts. For one, it’s easier to train employees in a centralized environment and supervisors can more easily ensure originators are abreast of new regulations and new compliance requirements. Also, it’s more efficient to house employees in one central location as opposed to across a credit union’s entire footprint. Communication among originators, district managers, and senior staff in a decentralized model is a challenge as well.
But SECU is not inefficient. Its revenue/operating expense ratio was 186.95% at third quarter 2015, higher than the 167.95% posted by credit unions with more than $1 billion in assets.
“It’s a challenge to make sure that all of our originators are fully trained and up-to-date on our products,” Coburn says. “It’s difficult to do that by sending them an email or memo. If you have a centralized environment where you have employees all in one building, you can control that much better.”
SECU is willing to absorb and work through these obstacles, however, because the end result, Coburn says, is “better service for our members.”
Better Member Service
Mortgages aside, the design of SECU’s decentralized model has remained consistent throughout the past 20 years. With more than 2 million members across the state, SECU considers how it can make the biggest difference in individual members’ lives. Offering its services locally and providing “individual service based on individual needs,” as Coburn says, is the best way the credit union feels it can achieve that.
The credit union makes a number of loans through its online and automated channels — after all, this is 2015 — but often SECU can make the biggest difference in its members’ lives when someone from the credit union actually sits down and talks to them, Coburn says. He cites the SECU Mortgage Assistance Program as an example of this, a program that helps members having difficulty making mortgage payments.
The key to all our success was having someone at the local level that members could go in and talk to when they needed. Everything we do is built around that.
“The key to all our success was having someone at the local level that members could go in and talk to when they needed,” Coburn says. “Everything we do is built around that.”
And although a centralized model offers personnel and management efficiencies, the decentralized model offers efficiencies in the amount of time it takes to underwrite applications. Spreading a network of originators across the state gives any member the opportunity to come into a branch, sit down with an expert, and complete their paperwork as quickly as possible.
“That’s why we gave those lenders at the local level full authority to make loan decisions,” Coburn says. “Otherwise, it would be this waiting process where you’d have to get approval from someone else.”
But SECU’s decentralized model works because its originators are both well-trained and well-versed in the personality and financial needs of their local members. And SECU has fond these originators through local outreach.
Ten years ago, SECU gave its district managers more power over staffing levels and choices, although the ultimate approval still runs through human resources. This resulted in more local hires; individuals who grew up in an area, went to school there, or perhaps moved back to a familiar community.
“They know the people,” Coburn says. “They can make better judgments based on what’s going on in their community.”
How To Train Your Originator
“From a best practice standpoint, make sure you address risks, which is monitoring and training all your people,” Coburn says of decentralized lending.
To do that, SECU has developed a standardized lending certification program. This involves online courses and presentations that originators must complete as a form of continuing education. Courses are broken up into different topics such as income verification, personal loans, mortgage loans, and collateral.
All told, there are nine different courses originators must take to meet the credit union’s standard of competency. Originators need to meet a certain level of base knowledge before they are assigned a lending limit. of SECU's 1,800 total originators, 1,200 have lending limits at this time, according to Coburn.
To continue their education, originators must take an additional four online courses each year as well as participate in a series of four yearly webinars on current issues, the most recent of which was a 45 minute presentation on TRID.
The more originators the credit union adds, Coburn has found, the more important continuing education becomes.
“If you just certify them when they start and then don’t offer continuing education or additional training they can get lost in the shuffle,” he says. “We try to keep everyone educated.”
Going forward, Coburn says, the credit union won’t become more decentralized because “we’re probably as decentralized as you can get.” However, SECU will further emphasize the importance of individual branches. Call center volume has spiked recently, while branch traffic ebbs and flows throughout the day. The credit union has implemented a new phone system that allows the call center to route calls to a member’s respective local branch — a more efficient use of credit union resources and another way it’s connecting with members at the local level.
“We believe we’re here to serve the member,” Coburn says. “The best way to do that is to listen to their personal stories and show that we’re there when they need us. It’s the more expensive business model, but we do it efficiently and it gives better service for our members.”