MONTEREY, Calif. — Three credit union representatives shared their best practices on a variety of subjects in a Big Valley session.
Many showed up to hear Diana Michaels, CEO of $31 million Western Healthcare FCU, discuss how she prices loan and deposit rates. Michaels created a pricing matrix that takes actual product performance and profitability into consideration. Her system allows the Concord-based institution to confidently set loan rates and provides managers with easy guidelines for deposit rate matching.
Michaels' loan matrix provides for the usual cost of funds and staffing expenses, as well as risk factors, but the CEO also wanted to ensure that risk-based pricing provided for consistent margins regardless of credit score and an equal contribution to the bottom line.
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Usual loan pricing strategies, in which A+ paper receives a base rate, and subsequent credit classes are charged base plus a margin, resulted in actual margin losses for Michaels' B, C and D paper, and even some A paper. Her only profitable loans were to A+ and E paper.
After adjusting margins to match profitability, Michaels was able to simplify her loan pricing structure and do away with term-based rates.
"Instead, we based the rates on the average term turnaround in our portfolio, which is about 37 months," she said.
Changes resulted in a 10% increase in Western Healthcare's loan to share ratio, from 86 to 96% in only six months.
Deposit pricing research revealed member balances didn't break even until the $5,000 mark, with money market accounts bringing in the best returns thanks to tiered pricing.
Michaels credited her IT staff for creating an Excel program that figures relationship profitability for each member, so deposit price matching decisions can be made based purely on whether or not they maintain profitable member relationships.
Richard Smith, senior vice president of finance and lending at San Francisco Fire Credit Union also wowed attendees with a pre-approval program his IT staff created from scratch, MONEYLINE, which works seamlessly with the credit union's Ultradata core system.
Rather than issue pre-approvals that are product specific, MONEYLINE computes secured and unsecured credit limits for each member, allowing them to pick and choose which loan products they want.
A credit limit is prominently displayed for the member when he or she is logged into home banking. If interested, members select loan type, terms and payment arrangements online.
"The nice thing is that 90% of the time their requests are already approved, so the loan goes straight into processing," Smith said.
The program is also available for tellers, phone reps and loan officers so they can quickly walk members through the process.
In just 18 months, the $450 million credit union has funded more than $6 million with the system.
Linda White, CEO of $36 million United Health Credit Union, also presented her youth and teen marketing program, which has grown membership under age 21 to more than 10% of total members.
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