Arizona State Pools Resources to Make a Splash in Business Lending

Local banks were not providing good business service lending, so Arizona State stepped in with a full range of popular services.

Local banks were not providing good business service lending, so Arizona State stepped in with a full range of popular service.

In April 2005, Arizona State Credit Union began to explore business banking because its Board believed providing business banking products and services would benefit both the credit union and its members.

The credit union would gain financial benefit from funding future projects and member services. Chuck Anderson, SVP of Business Banking, says that Arizona State’s research regarding the members’ perspective was also positive. Members with small businesses reported their existing financial providers to be impersonal, arbitrary, and disinterested in meeting the needs of small business. By contrast, they loved the credit union, the staff, the caring, and the service levels experiencedin their consumer banking.

After reviewing alternative approaches, Arizona State created a business plan that entailed a complete in-house business lending system. Anderson says, It is by far the most ‘credit union-like’practice because with it you are helping members with their business needs; you control the loan portfolio, the pricing, the underwriting, everything and it is the most profitable alternative.

Building the Team

Arizona State accomplished much in a short time. In the first five months, Anderson says, the credit union launched the infrastructure for the business lending department, including host system set-up, written policies and operatingprocedures, credit and collateral file system, documentation system, resources for underwriting and servicing, and recruiting for loan officers and operations support personnel.

An important component of Arizona State’s business plan revolved around the creation of job descriptions, staffing, and resource costs. Anderson notes that only 22 months into operation, the business lending team of 12 associates had a combined200 years of experience in commercial lending. We hired experienced lenders but concentrated on compatibility with our culture first, followed by expertise in the field, says Anderson. He believes, the best protection for thecredit union and service to our members is using professional business lenders.

A Complete Product Line

Arizona State’s business lending program initially included the following products: operating lines of credit, term loans, and commercial real estate loans. Arizona State also engaged in some strategic partnerships in order to provide members witha leasing program and SBA loans. They started with lending because they believed they could ramp it up more quickly than deposits.

But while buying loan participations, hiring loan officers, and beginning the actual process of originating its own business loans, Arizona State instigated a cross-functional team — led by Anderson — for business deposits. Anderson says,It took 14 of us, representing just about every department in the credit union, to roll out deposits after five months of collaboration. We offered a deposit function six months after my hire, following our first credit union-origi nated businessloan by only 30 days. The credit union now provides all business loan products that a member might expect to receive at a local bank.

Getting the Word Out

Arizona State first offered its business loan program only to members through an internal newsletter and branch associates. But with the creation of a commercial loan team, calls and networking to community organizations and businesses soon augmentedthe credit union’s promotions. The team used a targeted list of businesses containing company sales, length of time in business, size and location within each of the credit unions market areas. The team provided the backboneof marketing for Arizona State’s business lending program by raising member awareness and serving as the focal point in each market area. Anderson says, We then set regional market development teams geographically within the state. Weconducted sales meetings with all management, loan team representatives and business development officers to increase sales training, team recognition, support and cooperation.

Arizona State is nationally recognized for its 2006 re-branding program, specifically with a sub-brand created for business banking. Some of the major highlights of Arizona State’s marketing program included:

Re-designing the website with Business Lending receiving special branding
Providing local and 800 numbers specifically for their Business Lending Department
Television and branding signage to connect the credit union andbusiness lending
Branch signage and branch displays with the Business Lending sub-brand

Arizona State’s marketing campaign has provided exceptional results. After 10 months of offering business services and products, the credit union ended 2006 with $4.7 million in new business deposit relationships; by of the end of June this year,the figure had grown to $7.9 million.

Managing Risk

The credit union adopted a board-approved MBL policy to comply with NCUA regulations and with all examinations. Loan reviews for credit quality and operating controls are held semi-annually. Arizona State’s first business loan review was held afterfive months of operation; it received no criticism. Anderson is pleased to report the program has experienced no 30-day delinquencies or losses on business loans.

Arizona State also formed an Executive Loan Committee composed of three directors and two executives, namely the President/CEO and SVP of Retail Lending. The committee was created with the purpose of reviewing and making decisions on all loans above thesenior management lending limit, focusing primarily on Member Business Loans.

Performance

Arizona State’s program has posted strong results since its inception last year. In 2007, loan production has been $40 million. Outstanding loan balances are $84.6 million, and total income is $2.6 million. The current portfolio includes 165 loans,with an average loan commitment of almost $593,000.

These results show in Arizona State’s net two-year loan growth of $265 million, of which Business Lending has contributed 32%.

April 22, 2016

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