If Your 2018 Goals Include Revenue and Loan Growth You Are Not Alone…
Posted by Mr. Dean Borland, SCMS, CUDE, Unknown, Unknown on 12/22/2017

Given that it is late December I will hazard to guess that most credit unions have inked a strategic plan and if the 2018 operating plan and budget is not already approved it likely will be very soon. I will even go out on a limb and project that many, if not most, in Credit Union Land have aspirations for revenue growth in 2018.

Callahan & Associates’ Peer-to-Peer software provides some insights into the credit union revenue dynamic. On average, loans constituted 70% of credit union assets and directly contributed 63% of total income generated by credit unions in Arkansas, Oklahoma, and Texas in the third quarter of 2017. “Other” operating income, which is frequently derived from loan-related activities, accounted for 12.8% of income. Adding the two together one might say that lending directly or indirectly contributes over 70% of credit union income.

Rounding out the categories, fees are the second largest single source of income at 17.2% of the regional total. Investments, which constitute 17% of credit union assets, generate 7% of total income.

Depending upon your credit union’s loans-to-assets ratio your income composition may not look like the averages, which are admittedly influenced heavily by large credit unions. And credit union profitability is generally higher among credit unions with healthy loans-to-asset positions. So, if you are looking for revenue enhancement and your loan mix is not where it needs to be, a likely candidate for revenue enhancement may be loan growth.

I have been privy to many strategic discussions about loan growth, many of which gravitated toward new membership growth. But, the truth is, you don’t necessarily have to enroll new members to grow loans.

Ask yourself. How many of my credit union members drive a car? How many cars on the road are under a lien? How many of my member households have their car loan with my credit union?

If you are in AR, OK, or TX it is likely that almost all of your members have an automobile. As recently as May 2017, the Federal Reserve Bank of New York reported that a record 107 million Americans have a car loan. That’s about 43% of the entire U.S. population. Consumer Reports estimates that over 84% of vehicle purchases involved financing, either a loan or a lease. That begs the question, how many of your members financed their vehicle with your credit union?

Obviously we can’t publish the auto loan penetration rates for every credit union in Arkansas, Oklahoma and Texas in this short blog, but I can tell you that the average auto loan penetration rate for credit unions within this three-state region as of September 30, 2017 was 25.15%. In the spirit of full disclosure it’s only fair that I tell you that this number has grown dramatically over the past 4 years. Our auto loan penetration rate was 20.28% in at the end of the third quarter of 2013. Even so, how many of your members drive a vehicle to the credit union? How many of those vehicles have a lien? How many of those liens are to your credit union? Just saying…

New member growth is both desirable and necessary, but the point of this little trip down the rabbit hole is that new members are not the only source for lending enhancement. Opportunity for lending enhancement exists within your current membership.

So, how do you capture incremental loans from your existing (and new) members? Start with an analysis of your value proposition.

Not all of your members have stellar credit. Be sure that your loan policies and practices are inclusive of and appeal to most, if not all, of your member segments. The rates you charge are very important to your “A” paper borrowers but for borrowers with lower credit scores getting a loan with affordable payments is probably more important than the interest rate. Price to the risk.

Not all buyers are able to make a 10% or 20% down payment. “Full boat” financing is increasingly common. If you are going to be in the game you may have to concede to lower or no down payment. Price to the risk.

And, you are going to have to find those potential borrowers when they are considering making taking out a loan. You have to be in the consideration when your member is buying a vehicle, but there may also be opportunities to recapture a loan after the initial financing. If you already have the tools and wherewithal to deliver the right appeal at the right time to the right members none of this is news to you. If you don’t have the tools or competencies to do it yourself you will need some help.

Ser Technology (https://www.sertech.com), a Credit Union Resources premier business partner, can help with analytics and predictive, targeted, credit-based marketing to identify and engage your credit union’s most likely loan candidates, whether the target is auto loans, credit cards, mortgages, home equity, personal loans or even student loans. If you have a 2018 goal to grow revenue and loans, know that you are not in it alone.

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