By Ray Birch
ROANOKE, Va.–One small credit union that’s enjoying two very successful lending years—and impressive net income growth—attributes much of that to a change in mindset, something the organization says can be difficult for small CUs to do.
But such a change has been the key for the $103.6-million Roanoke Valley Community CU, according to Co-CEO Pam Duke. The credit union has managed to grow loans by 37.2% in 2023 and has added $5.5-million in new loans through the first half of 2024.
In 2023, RVCU’s net income ($1,656,097) almost doubled its net income from the previous year. And through Q2 2024, the organization was on pace to beat last year’s performance. Duke explained that RVCU’s goal for this year is to be 72% loaned out and to achieve $10 million in loan growth.
“As of mid-July, we're 77% loaned out,” said Duke. “We have been steadily increasing our loan portfolio. Last year we increased it by $15 million and this year we have aimed a little bit lower, not knowing what was going to happen in the market and assuming that the Fed was going to make some changes. And, yes, we had a very strong year in 2023.”
Some Important Changes
Duke said the credit union made some important changes to its lending approach following the pandemic.
“After COVID, and with the impact it had on how you interact with members, we retrained our team on how they need to service members. And part of that training included cross selling,” she said. “Every member who walks through our doors either owns a home, has a Visa card in their wallet…Before that our staff was not letting members know that we offer very competitive loan rates.”
Roanoke Valley Community CU is charging 4.5% for auto loans for the best paper.
“We have a popular mortgage program that’s tied to the 10-year Treasury note—plus 1.35%,” she said. “If someone locked in today the rate would be 5.53%, at 15 years.”
Growth in the Fast Lane
Duke said the credit union’s auto loan portfolio has been markedly pressing on the gas due to refinances.
“And I would say the growth is coming mostly in used cars,” she said. “On the mortgage side this year we're seeing a lot of people tapping into their house for whatever their needs may be—a home improvement, consolidating their debt...With the first mortgage rates up higher, they're using the home equity type products more now instead of refinancing.”
COO Scott Ruhlman noted RVCU recently ran an auto refi promotion that offered to reduce members’ rate from another lender by two percentage points.
“That was very successful,” Scott said. “We also extended our loan-to-value allowances and terms. We will now finance a car for 96 months and up to 135% loan to value. We're not doing a whole lot of 96-month terms and the 135% LTVs, but members know that option is there, and they think of us first when they have lending needs.”
‘Lucrative’ Incentives
Playing a key role in cross sales is an incentive program that Duke called “lucrative” for employees.
“For every $1 million that we increase in loans, the team gets an extra $300 each,” Duke said.
The success RVFCU is experiencing is coming at the same time some forecasts see a slowdown in credit union lending ahead, including a recent TruStage Trends Report.
Different Frame of Mind
How does a small credit union succeed in this environment? Co-CEO Lauren Whitmire said one way is to change “small credit union” thinking.
“One thing we have changed is our mindset,” Whitmire said. “We have had a different frame of mind in the last year and a half. We had some money in investments that matured and we decided that instead of putting that money back into investments, we would flip it around and give it to our members. If we can get 5% on an investment, then we will turn it around and do a 5% car loan per member. I think a lot of small credit unions lean on those investments too much. We were doing that at one time. We simply chose not to do that any longer.”
Ruhlman said the strategy reflects an investment in the membership, and has also allowed it to beat auto lending rates in its market.
Investing in Members
The move is simply an investment in the membership, Ruhlman said, adding the approach has allowed the credit union to beat auto lending rates in their market.
“With the average car loan may at 7%, anything above 5% is a better return on our money that we had in investments. We have been able to offer lower rates with that thinking,” he said.
Added Duke, “We need to get back to what the core is for credit unions, and it wasn't to make money off investments. Maybe in the past that vision got clouded a little bit, so we decided that we needed to get back to what we feel the core is for credit unions, which is helping your membership.”