Filene Finds CU Lending Leaders
Despite a lingering lending slump, several credit unions managed to grow their loan portfolios by more than 5% during the Great Recession.
The Filene Research Institute highlighted some of those credit unions in a new report, “Superior Consumer Lenders During the Great Recession.”
Only 23 out of more than 2,200 U.S. credit unions larger than $50 million grew their new and used auto loan portfolios by more than 5% each year between 2008 and 2010, and only 11 of those also grew their credit card portfolios by 5%, the data revealed.
Filene said its researchers conducted qualitative interviews with 12 of the 23 credit unions with many of them hailing from the Midwest and Texas. Several common strengths emerged among the 12 credit unions featured. Among them were consistent underwriting, a focus on improving sales culture and an emphasis on refinancing.
The credit unions featured were the $95 million Acadia FCU in Fort Kent, Maine, the $194 million Baton Rouge Telco CU in Baton Rouge, La., the $203 million Columbus Metro FCU in Columbus, Ohio, the $54 million Daniels-Sheridan FCU in Scobey, Mont., the $71 million Education Plus CU in Monroe, Mich., the $1.1 billion Gesa CU in Richland, Wash., the $170 million Hutchinson CU in Hutchinson, Kan., the $506 million SAC FCU in Bellevue, Neb., and the $737 million Scott CU in Collinsville, Ill.
The three Texas credit unions profiled were the $1.2 billion EECU in Fort Worth, the $732 million Fort Worth Community CU in Bedford, and the $6.5 billion Security Service FCU in San Antonio.
Through marketing power, a handful of the credit unions were able to leverage strong positions in a local economy or particular product line to make themselves first-choice lenders even during the downturn, according to Filene.
While the report focused mainly on auto and credit card lines, several credit unions attributed their consumer lending success to cross selling from other products like mortgages or agriculture loans.
Filene found that a minority of credit unions interviewed got their loans through traditional, direct means, such as relying on existing members, branch traffic and steady cross selling. Still, the majority captured their lending growth primarily from indirect lending. Each cultivated strong dealer relationships, invested in technology and set its own underwriting standards.
“Even though each credit union was able to keep growing loans throughout the downturn, none had stumbled upon a wholly new product or program,” said Ben Rogers, research director at Filene.
Most of the credit unions featured are in the Midwest–Illinois, Indiana, Iowa, Kansas, Michigan, Nebraska, and Ohio, Rogers noted. Texas had four high performers. None of the lenders was in a Sand State and very few were on either coast.
When it came to sales culture, Rogers found that some of the sales tactics used were cash incentives for loans of a certain size, incentives for the fourth product sold to a member and software that flagged credit card sales opportunities for members with other credit union loans. Filene defined sales culture as cross selling, sales-specific training for employees and defined product sales goals for member-facing staff.
Six of the 12 credit unions interviewed identified consistent underwriting as a key differentiator for their lending successes, the report noted. Historically, it had positioned them as stable, meaning they were able to manage delinquencies and losses going into the recession. They also didn’t radically alter their terms in search of new members or new revenue, the data showed.
For those credit unions that relied more on direct lending, Filene found that refinancing was a key factor for lending success.
“Refinancing success often relies on good data mining to identify the most likely targets for refinancing, but the credit unions that felt they were successful also emphasized the importance of loan officers having the data and then actively asking for the business,” the report read.
Filene defined market power as “being a sufficiently large and well-known institution so that the credit union’s actions significantly influence the market it serves.” One credit union profiled had hundreds of indirect dealer relationships that enabled it to leverage its size, speed and consistency to earn significant market share. Even though two of the credit unions profiled were smaller and located in small communities, they were able to have a large presence.
Another factor that emerged within the credit unions profiled was symbiotic product lines. Two of the 12 credit unions insist that their consumer lending success wouldn’t have happened without their success in other areas. Mortgage lending for one credit union featured proved to be a link to auto and credit card loan opportunities. Another cooperative was able to link agriculture equipment lending to auto loan leads.
The survey separated those who rely on direct lending to members or potential members, as opposed to loans that come from auto or other dealers, for more than 50% of their consumer loan growth. According to the report, four of the 12 credit unions primarily grew their consumer lending through direct-to-member channels, although three of those also counted some indirect lending activity.
Eight of the 12 credit unions interviewed relied heavily on indirect lending for their consumer loan growth. Despite their success in indirect, all spoke of the need to prioritize growth through other channels and to cross sell new indirect members on other credit union products.
Filene also found even “the leaders who relied heavily on indirect lending often expressed concerns about this practice but they also argued that the convenience for consumers is the driving factor in car-buying decisions, which credit unions have long recognized.”