Strategies To Make A Direct Impact On Auto Loan Growth

Three credit unions without indirect lending take the road less traveled to increase loans and relationships.

 
 

When Kurt Schmidt took over as CEO of Western Heritage Credit Union ($78.3M, Alliance, NE) in January 2014, he had lending on his mind.

“Since 2009, the credit union had seen no asset growth and had a slight decline in loan growth,” Schmidt says. “That was a major initiative I was focused on when I got here: how do we get lending turned around.”

Indirect lending and participation loans have been key drivers of growth for many credit unions in recent years. According to Peer-to-Peer analysis from Callahan & Associates, indirect loans as a percentage of total credit union auto lending grew to 49.07% as of the end of 2014. 

INDIRECT AUTO LOANS/TOTAL AUTO LOANS
For all U.S. credit unions | Data as of 03.31.15
© Callahan & Associates | www.creditunions.com

Indirect_Auto_LoansTotal_Auto_Loans
Source: Peer-to-Peer Analytics by Callahan & Associates 

Credit unions that did not engage in indirect lending and participation loans increased their loan portfolios by 7.41% last year compared with 10.82% growth for the industry as a whole.

LOAN GROWTH
For all U.S. credit unions | Data as of 03.31.15
© Callahan & Associates | www.creditunions.com

loan_growth

Source: Peer-to-Peer Analytics by Callahan & Associates 

*All credit unions in U.S., vs. credit unions over $50M in assets, with no indirect lending or participation loans.

Yet Western Heritage is one of several cooperatives to achieve remarkable portfolio gains without the benefit of indirect auto lending or participation loans.

A Direct Approach To Change

CU QUICK FACTS

WESTERN HERITAGE CREDIT UNION
Data as of 06.30.15
  • HQ: Alliance, NE
  • ASSETS: $78.3M
  • MEMBERS: 10,944
  • 12-MO SHARE GROWTH: 4.40%
  • 12-MO LOAN GROWTH: 24.79%
  • ROA: 0.38%

Schmidt spent the first three months on the job analyzing his credit union’s strengths and weaknesses. Although one of its two branches had a strong sales culture, the credit union was not hitting its loan growth goals. He discovered that loan officers in these branches had strong ancillary sales — GAP, credit life and disability — but these same representatives were not empowered to open deposit accounts; thus, they missed out on significant opportunities to cross-sell and deepen relationships.

So Schmidt took a three-step approach to put lending back on track. He mothballed the credit union’s stagnant indirect lending program, focused on team coaching and motivation, and restructured loan approval authority and limits.

The results were remarkable. According to a recent Peer-to-Peer analysis, by the end of 2014 Western Heritage posted 33.64% growth in its loan portfolio over the prior year, the second-highest growth among 637 credit unions nationwide that do not have indirect lending or participation loans. The only credit union on that list that showed stronger growth last year was Ferguson Federal Credit Union ($58.3M, Monticello, MS). CEO Leslie Pitts attributes Ferguson’s impressive 57.45% growth largely to one major change implemented in early 2014.

CU QUICK FACTS

FERGUSON FEDERAL CREDIT UNION
Data as of 06.30.15
  • HQ: Monticello, MS
  • ASSETS: $58.3M
  • MEMBERS: 4,140
  • 12-MO SHARE GROWTH: -1.04%
  • 12-MO LOAN GROWTH: 42.05%
  • ROA: 1.35%

“We became a community-chartered credit union in April 2014, gaining all of Lawrence County, MS, within our field of membership,” Pitts says. “In our area, the majority of our members and potential members are mid-career and are in their prime borrowing years.”

“We strive to capture every sales opportunity in all departments,” Pitts continues. “For example, our accounting department monitors incoming ACH activity to identify outgoing loan payments to other financial institutions.”

At that point, according to Pitts, a credit union employee picks up the phone and calls the member to discuss refinancing with the credit union. 

“It’s not just the front office’s responsibility to help with loan growth,” Pitts says.

Schmidt also credits his team’s commitment for Western Heritage’s success.

“It’s been an entire team effort, leveraging what they do well,” Schmidt says. “We are fortunate because our team is made up of super stars. Leadership can try to put the right culture in place, but it takes motivated staff. We have that in spades.”


Success At A Large Credit Union

California Credit Union ($1.465B, Glendale, CA) placed 22nd in loan growth on that list of 637 credit unions nationwide that do not have indirect lending or participation loans. Notably, it led the pack among credit unions with more than $1 billion in assets.

CCU grew loans by 19.69% in 2014. And this year is looking even stronger, with 24.16% growth year-over-year through June.

“Our growth is directly attributed to our investment in great sales people and consistent sales management,” says John Bretthauer, EVP/COO for CCU. “From the teller referring a credit card to the loan officer originating the most sophisticated real estate transaction, CCU’s sales team is managed to monthly productions goals.”

CU QUICK FACTS

CALIFORNIA CREDIT UNION
Data as of 06.30.15
  • HQ: Glendale, CA
  • ASSETS: $1.465B
  • MEMBERS: 87,197
  • 12-MO SHARE GROWTH: 10.36%
  • 12-MO LOAN GROWTH: 24.16%
  • ROA: 0.87%

The credit union monitors those production numbers daily, and weekly sales meetings ensure staff activities help the credit union meet or exceed targets.

According to Bretthauer, CCU focuses on establishing long-term relationships with its members by providing them with a direct link to a trusted advisor who works with their changing financial needs.

“We make every effort to present our brand as being a credit union that can anticipate the member’s needs,” Bretthauer says. “We will grow and change with them.”

5 Keys To Remarkable Loan Growth

Western Heritage, Ferguson Federal, and California Credit Union differ greatly in size, field of membership, and geography. However, there are five common denominators that underpin their loan growth success.

First, the credit unions invest in people. Senior leaders at all three credit unions emphasize the role of member-facing staff. Through trackable incentive plans, accountability, and continuous coaching and recognition, these credit unions motivate their teams to shoot higher and farther.

Second, they empower the front-line to make decisions. Prior to Schmidt’s tenure at Western Heritage, an all-volunteer credit committee made loan decisions.

“We were losing some of the passion to fight for loans,” Schmidt says.

The credit union disbanded the committee and granted higher limits to loan officers, with the ultimate authority resting with the CEO and vice president of operations.

“Declining a member should be a painful experience,” Schmidt says. “You shouldn’t allow someone in an ivory tower that has no interaction with members to make loan decisions. I want the person on the spot approving the loan.”

Third, these credit unions don’t waste time or money on lending-focused marketing campaigns. Of the three institutions, none attributed their growth to a special loan campaign.

“Our only loan marketing comes from word-of-mouth,” says Pitts of Ferguson FCU. “We maximize every lending opportunity with new and existing members.”

Bretthauer at California Credit Union echoes the sentiment.

“Our marketing is less campaign-based and more target- and relationship-focused,” he says. “We are not a ‘hot deal’ type of financial institution.”

Fourth, all three credit unions focus on core strengths. Schmidt made some drastic changes during his first year on the job, enabling Western Heritage to focus on the credit union’s competitive advantages. This included abandoning business lines — such as mortgages, business lending, and indirect lending —that didn’t support the core growth strategy.

And finally, Western Heritage, Ferguson Federal, and California Credit Union monitor their loan quality.

When loan volume picks up, it is easy for credit quality to suffer. The key is to anticipate and monitor potential issues before they occur.

“While times are good, many might view the special assets departments as akin to the Maytag Repairman,” Bretthauer says. “However, as many credit unions have learned, by the time you realize you need a special assets group it might be too late.”

 

 

 

Aug. 24, 2015


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