Loan Zone: Leadership Strategies for 2014

Credit Union Management magazine’s Web-only “Loan Zone” column runs the fourth Tuesday of the month.

Successful credit unions in 2014 will be proactive, not reactive, in their effort to maximize loan growth and profitability while managing risks and minimizing losses. Listed below are four leadership strategies to explore that other credit unions have used to significantly increased loans and profitability for each institution.

1. Re-think, out-think, and innovate: Leaders must rethink, out-think, and innovate as stated by Mark DeBellis in his book, Reflections Through the Windshield. In other words, credit unions cannot continue doing what they have always done and expect to get the same results. They must engage in “business not as usual” and this requires creativity. John C. Maxwell, author of How Successful People Think, defines creativity as “intelligence having fun.” Leaders must not only think outside the proverbial box, but encourage their team leaders to escape their silos and look for innovative ways to attract profitable quality loans. To get going on your creative thinking ask, What can we do differently or better to:

• ensure loan growth and profitability?
• help the credit union capture more quality loan opportunities?
• get more face-to-face opportunities with people within our SEGs and businesses in our communities?
• capture more profitable quality loans?
• attract 18- to 24-year-olds … the most needed age demographic for credit unions to sustain long term?

Examples of what credit unions can do to attract profitable quality loans include, but are not limited to:

• Create a focus on “people”—not just members—to bring in new loans. Offer an employee and member referral reward program for “new member-new money” (minimum $5,000 balance).
• Market a secured credit card to help young individuals with no credit score establish a credit score of 680 to 700.
• Market a “fresh start” program that includes a secured credit card and auto loan to non-members and members who have demonstrated excellent financial responsibility subsequent to bankruptcy due to job loss, income loss, medical issues, and/or divorce. Remember, bad things happen to good people. The secured credit card improves the member’s credit score within 60 days of the open date (as long as he or she maintains a zero balance), as do payment history on both the secured credit card and auto loan.
• Offer a credit score management program to people in your communities and/or select employee groups, as well as your members. For example, offer a credit score management seminar and free one-on-one consultations about how to improve one’s credit score.

2. Develop a holistic vision: Transform your credit union through a holistic approach to loan growth and profitability. Developing a holistic approach is like putting all the pieces of a puzzle together to make it complete. Those pieces include: clear, SMART (specific, measurable, achievable, realistic or real to your staff, and timeframes) strategic objectives; accountability SMART goals for staff; a strong brand that employees live daily; unique and compelling marketing strategies to attract non-members who do business with banks (not other credit unions); internal sales initiatives to create a focus on loan growth; sales and service training initiatives; reward and recognition programs; and celebrations of success along the journey.

3. Create a SMART action plan: Take your vision and transfer it into a practical step-by-step SMART action plan, a fluid plan that can be brought to life with three to five objectives and three to five action steps under each objective. Remember, what gets written down usually gets done, especially if there is a timeline included and follow-up (weekly/monthly meetings for updates).

Also establish goals for the credit union, branches/departments, and individuals that align with overall strategic objectives: loan growth, loan yield, ROA, loan-to-share ratio, and delinquency ratio. By increasing quality loans and loan yield, your ROA and loan-to-share ratio will improve automatically. Developing a risk management manual with specific guidelines and processes will help manage your delinquency ratio.

Be sure to describe action steps in your plan. Have managers and employees outline what they will do for each action plan item to help achieve increased loan growth and profitability and maintain low delinquency.

Develop no more than three activities—daily actions taken by staff to help achieve the goals. For each action step, have time lines (mandatory, but not written in stone), and don’t forget to measure and reward results that are on track for return on investment. For example, reward employees and members who refer profitable quality loans for non-members (new member/new money strategy) and existing members who have loans at other financial institutions (minimum $5,000 balance on loan).

4. Create integrated, innovative programs that appeal to first-time borrowers and B, C, and D members—your most profitable members. For example, offer free credit score analyses—one-on-one personal consultations in which an individual’s credit report is reviewed, as well as how a credit score can be established or improved, monthly payments on loans with other financial institutions lowered, and high-interest rate credit cards eliminated. Example: If you transfer high-interest rate credit cards into the equity of a person’s auto, the credit score could increase up to 100 points. At the same time, you would eliminate high-interest rate credit cards, saving the person hundreds, if not thousands, of dollars in interest, depending on the balances on their credit cards as well as lower their debt-to-income ratio. One credit union transferred approximately $30,000 of credit card debt into the equity of two vehicles (one of which was financed for $26,000 at another financial institution), lowering the member’s monthly payout and saving him over $8,000 in interest.

Ultimately, the recipe for successful lending in 2014 is creating the proverbial win/win/win solutions (a win for the credit union; a win for people; a win for the employee).

Celeste Cook is CEO/founder of cuStrategies LLC. She offers consulting services and training programs to the credit union industry. She is also a credit union strategist and professional speaker.