A Major Shift For A Loan Portfolio

How Air Academy FCU refocused its lending activity to achieve an ideal balance.

In 2009, Air Academy Federal Credit Union ($470.0M, Colorado Springs, CO) was heavily concentrated in mortgage lending. At the time, 67.27% of its portfolio was tied up in real estate. So with a goal in mind and a strategy in place, the credit union shifted its loan concentration from mortgage to indirect consumer lending. Now, after five years of work, its portfolio composition represents a more balanced blend of products. According to Search & Analyze data on CreditUnions.com, as of Dec. 31, 2013, new auto lending comprises 22.9%, used auto lending accounts for 40.0%, and real estate including first mortgages and other real estate has shrunk to 35.2%. The credit union can even attribute approximately 2.4% of its portfolio to member business lending.

Despite the drastic change in its portfolio, the credit union has kept its delinquency ratio lower than 0.5% throughout the past five years 0.19% in 2009 and 0.43% in 2013. By comparison, the industry average for delinquent loans at year-end 2013 was 1.0%.

Cory Schultz joined Air Academy as vice president of business services in 2009. As the economy shifted, Schultz’s focused turned from business lending to indirect lending. He took on consumer lending when he became chief operating officer in 2011. In September 2013, the credit union named him chief lending officer, and he now oversees consumer as well as mortgage lending.


data as of 12.31.13

  • HQ: Colorado Springs, CO
  • ASSETS: $470.0M
  • MEMBERS: 45,351
  • 12-MO SHARE GROWTH: 5.77%
  • 12-MO LOAN GROWTH: 12.37%
  • ROA: 0.39%

Here, Shultz talks about the changes at Air Academy, its place in the Colorado marketplace, and its plans for the future.

What started the shift in the lending portfolio five years ago?

Cory Shultz: We always had a heavy mortgage portfolio, but the core of what credit union’s do is auto loans. We wanted to do more of them. How do we do it? Well, it’s hard to grow your portfolio just through the consumer side so we started thinking about making a transition from mortgage to auto.

Also, the economy shifted after I joined the team in 2009, and business lending, which was my area of focus, became one of those categories NCUA denoted as a major risk area. I found a need to reinvent myself and we were talking about how we need to get into indirect lending, so I focused my attention on growing that portfolio.

How is the lending portfolio different now from what it was five years ago?

CS: We always try to maintain a portfolio that is 50% real estate and 50% consumer lending or auto. In the past three to five years, we’ve flipped that entire model. Before, a majority of the portfolio was in mortgage and now a majority is in auto. Right now we’re in the transition of pulling it back closer to 50/50.

On the indirect side of the house, the portfolio is much more seasoned. We are smarter about what we do today. We’ve been able to see how the portfolio performs over time. Mortgage lending was a little bit riskier back then. We didn’t know what was happening with property values, so indirect was a way to diversify risk. Now that we’ve gotten through the pain of the property values, we’ve tried to bring it back to a 50/50 model. Our mortgage portfolio is just back now to where we’re going to start growing it again.

Did any programs help grow the auto portfolio?

CS: No, it was going back to the basics of how we build relationships. We wanted to own all our relationships with people, so we couldn’t focus on everybody in the marketplace, but we needed to find our niche. We’re dealing with big credit unions like Security Service ($7.68B, San Antonio, TX) right in our backyard. It’s much bigger than we can ever think of being, so for us, it’s really about getting people on the ground, understanding the marketplace, and understanding what we can offer within that.

A lot of the big boys we play with don’t like picking up the phone, talking through deals, understanding them, hearing the stories, and finding a way to get to a yes. That’s what we decided to do.

A Flipped Portfolio

  • 2009: 67.27% in mortgage and 30.39% in consumer with a 0.19% delinquency ratio.
  • 2014: 34.39% in mortgage and 63.95% in consumer with a 0.43% delinquency ratio.

What is a balance portfolio important?

CS:You can’t be a one trick pony. You need diverse resources because there is an ebb and flow to the economy. In a marketplace where mortgage lending might be hot, like the refi boom that we just went through, if you’re not diversified, it could have a drastic impact on your profitability.

How has the credit union kept such a low delinquency ratio?

CS:We’ve had low delinquencies, which is good, but we were sacrificing profitability or rate sometimes by keeping such a clean portfolio. So now we are thinking how do we write down the credit curve without taking on too much risk, but getting paid for it. That’s the direction we’re going in. My goal is to see the portfolio have a higher delinquency number and a few more charge-offs to actively balance the profitability in the portfolio and get rewarded for the additional risk we’re taking on. That’s going to be the magic that we’re going for in 2014.

That being said, I would attribute our low delinquency and charge-offs to our member solutions area. As the portfolio grew, we took on a system where a third party does outbound calls for us to collect payments within a 15- to 30-day window. This allows our collectors to chase the harder ones and frees them up to figure out payment plans, workout deals, and get people to pay. It allows them to do the harder stuff, which is what they’re really good at.

What are your lending plans going forward?

CS: We’re trying to maintain our portfolio at its current size, between that $200 million and $215 million benchmark is where we’d like to keep our indirect portfolio. We want to push our mortgage business to grow the specialized portfolio loans we like to do. We have a 10-year loan product we’ve been doing for about 15 years; it’s up to about $60 million in business. In that time, we’ve never had a single loan in that portfolio go 60 days late and we’ve never had a foreclosure. I mean it’s a rock-solid portfolio, so we want to continue pushing that for membership.

The final thing we’re exploring this year is lifestyle or retail lending. How do we create a marketplace in Colorado that doesn’t exist in the credit union world? That’s going to be our big push, probably late third quarter or fourth quarter for this year. We’re in the building process right now.

July 23, 2014

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