Wanted: More Than An Approval

How Randolph-Brooks and Lake Trust turn approved loans into funded ones.

Every financial institution whether bank or credit union wants to find and retain members. According to fourth quarter 5300 Call Report data, share drafts and checking accounts at credit unions continue to grow. At the same time, credit unions are doing more lending than at any time in their history: $345.8 billion originated in 2013, according to Peer-to-Peer analytics.

While the credit union lending market continues to grow, notwithstanding the current fundamental shift in the mortgage market, institutions continue to focus time and resources into bolstering the portfolio. Loans can make for fickle business. Attractive rates tempt borrowers to follow the deal rather than show consistent institutional loyalty. But some credit unions have responded by offering automatic approvals to those who fit a performance profile in the hope borrowers will find the ease and efficiency with which to obtain a line of credit attractive. Few consumers today tolerate a review process that stretches over multiple days. And despite tightening regulations, credit unions taking a more holistic view of incoming loan applications are finding ways to approve more loans. For example, some approve borrowers with more derogatory histories; however, there is a limit.

Fourth Quarter Performance Review

For more on how the industry performed in 2013, watch Callahan’s Trendwatch webinar.

That’s not to say every credit history we look at with a foreclosure or with a previous bankruptcy is going to result in an approval, says Robert Hensley, chief lending officer at Lake Trust Credit Union. But those are going to require a harder look than they once might have because we’re coming out of something we’ve never experienced before; at least not in my lifetime.

Of course, even when a credit union approves a loan, that doesn’t mean it will ultimately end up funding it.


data as of 12.31.13

  • HQ: Live Oak, TX
  • ASSETS: $5.7B
  • MEMBERS: 448,388
  • 12-MO SHARE GROWTH: 7.88%
  • 12-MO LOAN GROWTH: 10.40%
  • ROA: 1.28%

The Randolph-Brooks Approach

A self-described old-fashioned lender, Randolph-Brooks Federal Credit Union ($5.7B; Live Oak, TX) has grown its loan portfolio 55% since 2009 to a balance of slightly less than $3.6 billion. Much of RBFCU’s loans come in through direct channels, which helps mitigate the flight risk associated with indirect member who are more apt to leave for a more attractive financing offer. To keep borrowers with the credit union, RBFCU strives to offer terms suited to members’ financial conditions.

Throughout the entire lending process, we seek to serve the member’s best interest, says Mark Sekula, executive vice president and chief lending officer at RBFCU. That means we might not offer a member exactly the loan they request, but we will offer them something that fits their needs and won’t place them under undue financial strain.

Sekula estimates the credit union funds two out of every three loans it approves; however, with 90,000 annual loan approvals, that still leaves a lot of loans on the table. So despite RBFCU’s size and reputation, it has work to do to reach its approval-to-funding goal (a number Sekula declined to identify) and provide greater opportunities for its members to save.

Credit unions offer tremendous value to borrowers and savers. But as with any financial institution, the question is often not how to attract interest but turn that interest into dollars. One way to accomplish this is through building the member relationship, which takes time to develop. A conscious effort to treat each member as more than just a number, as Sekula says, can increase the likelihood members will continue and grow their relationship, meaning they’ll maintain their loans and secure additional lines in the future.

Our members are loyal because we’ve built true relationships with them, Sekula says. We hear stories almost daily about how our members are willing to share the RBFCU difference with others. If you take a look at our website, you can see the reviews members have offered for products like auto loans more than 90% of those reviews are 5-star.


data as of 12.13.31

  • HQ: Lansing, MI
  • ASSETS: $1.6B
  • MEMBERS: 161,155
  • 12-MO SHARE GROWTH: 2.24%
  • 12-MO LOAN GROWTH: 10.49%
  • 0.59%

The Lake Trust Touch

With its top five ranking in asset size, members, and loan balance in Michigan, according to Search Analyze data on CreditUnions.com, Lake Trust Credit Union ($1.6B, Lansing, MI) is one of the largest credit unions in its state and a product of an April 2010 merger between Nuunion and Detroit Edison Credit Unions.

The credit union’s headquarters are located a little less than a 90-minute-drive from Detroit, the Motor City, so its perhaps not surprising that Lake Trust holds more than 50% of its loan portfolio in autos. And indirect lending plays a major role in its lending strategy.

Our successes over the past couple of years particularly have in large part been due to our indirect and commercial lending strategies, Hensley says.

As the state’s economy continues to recover it was one of the hardest hit during the recession and Lake Trust holds a 1.58% delinquency rate as a result Hensley believes the credit union will see growth in other areas of the portfolio as well. For example, the institution is currently focused on expanding direct autos and credit cards.

Lake Trust uses a decision tree to process incoming loan applications. Regardless of the delivery channel, the credit union runs the application through the tree, where it grades financial metrics found on the applicant’s credit report against the standards it has established and differentiated by credit tier. An application that passes the decision tree criteria is automatically approved, one’s that do not go to a central underwriting group for decisioning.

Many incoming loan applications are pre-approved, but Lake Trust still runs into members who receive approval yet obtain funding from another source. Unfortunately, there is no shortage of reasons members take their business elsewhere, even after obtaining approval.

Members are going to shop, Hensley says. They might come in for a pre-approval before they go shopping or they might decide not to buy at a given time. They might have buyer’s remorse or they might just change their minds. I’m sure, too, that lags in the process result in losing some transactions. Hopefully we’re minimizing that as much as we can.

In 2013, the institution approved 45% of the loans it received and made more than $1.1 billion in loans, according to Callahan Associates’ Peer-to-Peer analytics. That’s one of the largest totals in the state of Michigan. Relying on indirect loans, however, has its difficulties. For one, indirect borrowers might not be looking for a financial relationship as much as a competitive rate, which makes them harder to convert into active or primary members. However, as Hensley points out, this is a concern for everyone applying for a loan, direct or indirect.

Do you always borrow from your primary financial institution? he asks.

Maybe not. So how can credit union make sure the members they approve for a loan end up taking it?

I think the key is ensuring that the member experience is so exceptional, a member doesn’t want to go someplace else or change their mind, Hensley says. Our rates are competitive [and] going to provide them the greatest value. At the end of the day, it’s not just about the pricing on the loan that moves a member to select one credit union or financial institution over another. It’s the entire member experience.

March 3, 2014

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