Security Service’s balance sheet looks a bit different than those of other credit unions. That’s because SSFCU ($6.1B, San Antonio, TX) operates the largest credit union indirect lending program for automobiles in the country.
According to the Texas-based credit union, Security Service finances one out of three cars on the road in San Antonio.
“Early on, Security Service recognized the importance of convenience,” says Jim Laffoon, executive vice president and chief operating officer of Security Service. “Today, three out of four consumers that buy cars finance them at the point of sale.”
If members want the credit union in the car dealerships, then that’s where the credit union wants to be.“To be effective in auto lending you have to be at the point of sale,” says Mike Chapman, senior vice president of lending.
% of Members with an Outstanding Auto Loan
Source: Callahan's Peer-to-Peer
Indirect lending is a core competency of the credit union, and one it has developed over a 20-year period. The key to the credit union’s strategy is consistency. A team of 13 loan officers reviews every indirect loan that comes through the credit union, whose market stretches across central Texas down to the border from El Paso to Corpus Christi as well as through mid-Colorado along Interstate 25. And as in Texas, business is booming in Colorado, where Security Service is the No. 1 auto lender.
Of course, getting accurate information from the member, who could be sitting in a branch at the base of the Rockies or sitting in a car dealership down the street from the Alamo, is also important. To this end, the credit union encourages employees and dealers to take the time to talk with members about any red flags or inconsistencies on a loan application.
The $6 billion credit union preapproves applications and automates underwriting, but to better serve members, it also examines individual applications by hand. Despite the vast technology at its fingertips, it never automatically denies an application. Loan officers (there are eight in Texas and five in Colorado) review denied applications to determine if the credit union can make the loan. Security Service portfolios its indirect loans — which total approximately $4 billion — so loan officers have a decisioning freedom that can have a positive impact on members.
Security Service’s indirect lending program is convenient for members, and its dealer relationships also help fuel the local economy. “Over the past few years, we’ve had some tough economic times,” Chapman says. “A lot of lenders pulled out, and the automobile dealers suffered.”
When the captive financers left the market, Security Service was there to prop up its local economies. It continued its business with more than 500 auto dealers by offering funding, answering questions, and in general, being a supportive resource.
“You really have to understand the auto industry and know what they’re going through,” Chapman continues. “With the problem the manufacturers had and the inventory issues, it’s been very difficult for them. We’ve been there for them, and it’s made a big difference.
The past few years might have been tough, but that hasn’t stopped Security Service from exploring new markets. When it enters a new market, whether it’s a new physical region or a new opportunity in an existing community, it gets to work building those indirect relationships. Security Service wants to be where its members are; its indirect lending program is just another way to expand its reach. It can be a challenge to respond to the unique needs of different markets — after all, different areas have been hurt worse than others — but the opportunity to provide members loans is worth the effort.
“As long as we can be where the member needs us to be, we’ll be successful,” Chapman says. And successful it has been. Despite purchase volumes decreasing by 50% in some cases, Security Service has maintained strong growth rates and credit quality.
As of September, Security Service had grown its auto loan portfolio by 11.0% annually, an increase of $419 million. Nationally, auto loans among credit unions in its peer group (more than $1 billion in assets) decreased by 5.8%. Indirect loans comprise the majority of Security Service’s auto loan portfolio, nearly 94%, and the credit union has managed a strong and problem-free indirect loan portfolio throughout the economic crisis. The credit union’s reportable indirect loan delinquency rate stood at 1.05% at September 30. Its charge-off ratio is even lower. Through the first nine months of 2010, the annualized net-charge off rate for SSFCU’s indirect loan portfolio was 69 basis points, which is about half the U.S. industry average of 1.26%.
In part, the credit union was able to achieve this success because of the opportunity to use an old strategy to bring in new members in new areas, Laffoon says. Twenty years ago, the credit union launched its indirect lending program based on the idea that member behavior was changing. By focusing on members’ expectations, the credit union developed a plan to meet their needs. That core philosophy still drives the program today.
“It started off with a plan that we believed we were doing the right thing for the right reasons,” says president and CEO Dave Reynolds, who was the executive vice president of lending when the credit union launched its indirect program. “We were meeting member needs. We were doing it in a way that was responsible and built our financial strength. Over the course of time, it became an important part of our business, and it remains that way today."