Loans Are the Best Investment
Diversified loan portfolio helps CU boost its 40% loan-to-share ratio.
A year after the financial debacle of 2008, $102 million asset Cooperative Center Federal Credit Union in Berkley, Calif., held a strategic planning meeting with the board and management team that delivered two business objectives:
- Be a good fiduciary of members’ deposits; and
- Lend or invest these deposits to generate positive, risk-controlled earnings for members.
Investment returns at that time—as well as today—were equivalent to the remains of a dog’s breakfast, so lending became the main focus. As the credit union had a 40% loan-to-share ratio, there was opportunity for growth.
The board and management also determined there was a need for diversification, as the loan portfolio was dominated by first mortgages. After discussions at the planning meeting, the credit union decided to focus on indirect auto lending, private student loans, and member business lending.
The goal was to increase loan volume and to achieve a minimum loan-to-share ratio of 65%, the average for its peer group. Initial efforts brought Cooperative Center Federal’s loan-to-share ratio to nearly 54%.
To further its efforts, the credit union entered the indirect auto loan market with the help of Credit Union Direct Lending (CUDL). It took some time, however, to make inroads with auto dealers, according to Debbie Crowson, marketing manager.
“It took a year to get familiar with car dealerships before they knew we were making car loans,” she says. “We worked with CUDL and we hired a rep who met with the dealers.”
The credit union used a “strict underwriting process” to ensure the quality of these loans, Crowson says, and it introduced a series of new products for members.
The “Stimulus Bailout” was a debt consolidation loan of up to $25,000 for members with high-rate credit cards or payday loans. The member had to be willing to receive credit counseling and agree to not take on additional debt until the consolidation loan was paid off.
Members also agreed to allow the credit union to pull their credit reports every six months to monitor their progress. The credit union funded 127 of these loans for about $887,000.
The “Refund Express” is an anticipated tax refund loan with no fees. The credit union offers free tax preparation during the tax season for low-income members, and the small dollar loan keeps members from waiting for their tax refunds.
The credit union is in its third year of offering private student loans for those attending the University of California-Berkeley. This balance of this portfolio currently is $1.8 million.
Cooperative Center Federal introduced member business loans due to a lack of other business financing options in the market. The credit union received a Small Business Administration loan certification and identified a state guarantee program that guarantees up to 80% of these loans.
After bank transfer day, Cooperative Center Federal ran a loan promotion with the tagline, “You’ve moved your money, now move your loans.”
“Members who pulled their savings out of big banks and brought them to the credit union need to understand that bringing us their loans would help even more,” Crowson says.
The credit union has been effective with its Web marketing. It’s essential to make things easy, Crowson advises.
“People have busy lives, so make it easy for them,” she says. “The product you are trying to sell has to be immediately available on the website. Offer loan products that have ease of application and make sure you can apply for the loan online.”