The Risk-Reward Trade-Off

Texas-based Navy Army Community Credit Union’s loan growth surge in 3Q 2012 proves some risk is worth taking.

Too much lending? It’s not a challenge many credit unions face these days, but Navy Army Community Credit Union ($1.6B, Corpus Christi, TX) is grappling that dilemma.

Navy Army Community CU converted from a federal to a state charter in 2011. The move expanded its potential member market in southeast Texas and fostered growth for the credit union in several areas, says CEO Wayne Vann. In third quarter 2012, the credit union reported 32.3% annual loan growth, 24.5% share growth, and 21.3% member growth.

For the past decade, our credit union has been growing exponentially, Vann says. We’re good at lending because we know our audience and we’re not risk adverse. We dive down into C and D paper for auto and consumer loans and make good decisions. By doing that, we make a lot of money.

Callahan & Associates |

Generated by Callahan & Associates’ Peer-to-Peer Software.

For many years the credit union has relied on an assessment of the member’s income, ability to repay, their character, and their relationship with the credit union to reach its lending decisions.Credit scores and collateral are the least prioritized portions of the application process.

According to Vann, Navy Army puts forth an aggressive effort to help members. The average credit score in the Corpus Christi area is around 600, which means the credit union’s A-grade paper starts at approximately 660. That’s B- or C-grade at most credit unions. The average income for the city’s 110,554 households was $44,893 in 2011, according to the U.S. Census Bureau.


Source: Navy-Army Community Credit Union

Automatic decision engines would kick out scores that are less than 600, but those are the loans where we’re making money, Vann says. We’re going to give [these members] an opportunity and a decent rate. And they turn into loyal members who pay us. It’s phenomenal. We have numbers to prove it.


Source: Navy-Army Community Credit Union

Navy Army reported a delinquency rate of 0.23%down 14.3% from a year prior and an ROA of 2.41%. It posted growth in several areas of its loan portfolio, including unsecured loans, new auto loans, used auto loans, and mortgages, according to Callahan & Associates’ Peer-to-Peer Software.

Callahan & Associates |

Generated by Callahan & Associates’ Peer-to-Peer Software.

The credit union is not just putting money into members’ hands, though; it is building the local economy by adding jobs. It created 32 new positions in the past year to accommodate for member growth and fine-tuned its employee training to focus more on lending and management skills. And its established incentive structure provided both higher employee /salaries and better credit union performance, says loan manager Gerry Morrow.

We incentivize our staff pretty heavily, Morrow says. We don’t incentivize them on loans made, we incentivize them on application decisions. If you incentivize on loans made, people will make bad decisions.

Navy Army Community Credit Union has a three-person training team that puts together programs and product knowledge for new hires and employees who show the potential to move up in the credit union. For training courses, the credit union uses video systems to engage staff without adding the cost of travel, says executive vice president Sarah O’Brien. It’s newly launched management program includes anywhere from nine to 12 staff members who move up in responsibility after completing requisite training.

It boils down to staff, Vann says. If your staff is motivated, if they feel like they have recognition and opportunity, and they’re treated fairly, they can’t help but be successful.

May 30, 2014

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