UNCASVILLE, Conn. (10/11/13)--For those credit unions that have been led to believe the path to prosperity lies in focusing only on members with spotless credit, Teri Robinson has a message for you: Don't believe the hype.
In engineering a stunning turnaround of Pacific Ironworkers FCU, the CEO of the $10.6 million asset institution in Portland, Ore., placed her faith in a variety of tools designed to serve underserved consumers and those with marginal credit histories.
She said she was rewarded mightily.
Robinson told a Community Credit Union & Growth Conference breakout session about strengthening credit unions' ability to serve the underserved.
Hit hard by the recession, Pacific Ironworkers Federal fell into the net worth restoration program, bottoming out at 4.8% in January 2010. Examiners focused on four areas, according to Robinson: risky borrowers, higher-than-peer loan yield, higher-than-peer income, and higher-than-peer operating expenses.
Her curiosity piqued, Robinson analyzed her books and made a surprising discovery: Pacific Ironworkers Federal attributed 80% of charge-offs in 2011--and 60% the following year--to members with A+ to B ratings.
"I wasn't losing it on the riskier members-- I was losing it on the members who could chase rates," she said.
Pacific Ironworkers Federal's most loyal members constituted that at-risk segment, Robinson said. She decided to earn back their business from predatory lenders, who were charging members an average annual percentage rate (APR) of 29% compared to 16% for the credit union's average D-rated borrower; some even qualified for a C rating and an 8.75% APR loan.
By mining credit reports, Pacific Ironworkers Federal identified loan conversion candidates. Again, she said the results might be surprising: Robinson cited a school teacher who makes $70,000 annually as a regular payday loan user.
"I figured, if they've been making that payment at 36% for 12 months, why not get that loan over here by me?" Robinson said.
In April 2011, Pacific Ironworkers Federal obtained a Community Development Financial Institution designation, creating regulatory flexibility. An infusion of secondary capital boosted the credit union's net worth from 6.61% in January 2012 to 8.2% as of August 2013. Pacific Ironworkers Federal's loan growth increased 35% in 2013, hitting $10.5 million.
This year, Pacific Ironworkers Federal granted 47% of its loans to C-, D-, and E-rated borrowers, had a loan yield of 8% and increased its portfolio by $5.7 million. It boasts a 1% delinquency rate, and a 101% loan-to-share ratio.
"Some of the theories we think about at the National Federation of Community Development Credit Unions, it's the people like her on the ground that prove it can happen," says Blake Myers, a federation consultant. "She's created a fair product that also works out very well for the credit union."