Adopting New Loan Origination Technology Produces Record Loan Growth For Pacific Service
To achieve 18% annualized loan growth, a credit union needs a robust and efficient loan origination system. For Pacific Service Credit Union, Lending 360 was the right loan origination system to get the job done.
The $1.2 billion credit union, located in Northern California, decided to shop around for a new LOS after its previous provider announced it would sunset Pacific Service’s system and replace it with a platform acquired through a merger. The new system was more complicated to use, had limited report options and less flexibility to track activity.
Chief Lending Officer and SVP, Chris Oldag, knew that his competitive market and tech savvy members required more; specifically, an LOS with a robust API interface that supports mobile and digital solutions and provides quick decisioning.
“You can’t miss the Rocket Mortgage commercials or browse for anything loan related online without getting an onslaught of ‘click here’ fintech streamlined approaches to access credit,” he said. “The last thing any of us wanted was an anvil for an LOS when it comes to the member or staff experience.”
Flexibility and speed were the most important qualities Pacific Service was looking for as it began its due diligence. And, Oldag said, the new system had to retain certain features of the credit union’s existing LOS – like the ability to access pre-screen pre-approvals – while also adding new features that would guarantee improvement to service and the member experience.
Pacific Service considered two other well-known loan origination software vendors before selecting Lending 360. The credit union was already familiar with CU Direct’s technology, having been a CUDL user for nearly five years.
“We were already delighted with CUDL for our indirect business,” Oldag said. “Sorting out the strengths of Lending 360 was easy when comparing it to the others we viewed.”
Since going live with Lending 360 in April 2017, Pacific Service has grown its consumer loan portfolio from $253 million to $401 million, representing a whopping 58.5% net growth. Pacific Service processes all of its consumer loans on the LOS, which includes direct and indirect auto loans, credit cards, second mortgage/home equity loans and credit lines, motorcycle/RV/boat loans and unsecured loans.
The credit union leveraged the loan origination system’s automated decisioning engine and cross-selling tools to fuel that amazing growth.
“We experienced positive balance growth in every consumer category, including our unsecured loans, by automating the decisions and adding a ‘click here’ option to accept a 100% automated unsecured loan up to $10,000,” Oldag explained. Pacific Service developed an automated workflow that funded the loans and put the funds into qualified member accounts (existing members with tier 1 or tier 2 membership status) within 60 seconds, he added.
The credit union also achieved 7.7% Visa card balance growth in 2018, by allowing members to accept prescreened preapproved Visa offers online through Lending 360. Pacific Service also promoted no-fee balance transfers and a strong rewards program in 2018 to facilitate growth.
With all that growth, surely Pacific Service had to compromise loan quality, right? Wrong. As of year-end 2018, the credit union reported just 0.04% delinquencies and has averaged around 0.20% charge offs since implementing the LOS.
In part, that’s because while Pacific Service still uses judgmental underwriting, about 30% of its loan approvals are automated by Lending 360, Oldag said. Additionally, a large percentage of members are pre-screened approved.
“That leaves time for us to focus on the tough ones,” he explained. “The controls and variables we’ve built into the system have helped our team look for more opportunities. They are now able to look for ways to build an application that is weak or has challenges.”
Lending 360’s underwriting efficiencies have also allowed Pacific Service to spend more time improving the quality of indirect deals and more closely track loan performance.
“We also monitor look-to-book ratios, track our high-volume dealers very carefully, monitor all slow first payments diligently, make very early contact if there is an insurance or ACH issue on any loan, and, we aren’t afraid to send the tow truck when the need arises,” Oldag explained.
Not only did Lending 360 produce improved underwriting efficiencies, Pacific Service also gained operational efficiencies that, as Oldag put it, “moved the credit union out of the ‘dark ages’ of lending.” The credit union uses the LOS’ online and mobile loan application tool and currently receives about 60% of its applications through those digital channels.
The credit union was able grow its consumer loan portfolio by 60% and only had to add three employees to boost funding – two handling indirect loans and one working direct loans. Once the credit union streamlines funding parameters required by its core, it will implement a “one and done” approach to funding which will further improve efficiencies and reduce the need for additional funding employees as it continues to grow loans.
Lending 360 didn’t just allow Pacific Service’s lending team to work more efficiently, it’s also improved their employee experience. Oldag described the transition as like “Christmas morning, tearing open new present after new present compared to their previous primitive system. Employees learned the new system very quickly,” he added.
He also noted Lending 360’s reliability, responsive time to key strokes and immediate data entry were all huge improvements over the credit union’s previous LOS.
Improved efficiencies and a transfer of assets from low-earning investments to loans more than doubled Pacific Service’s ROA since implementing Lending 360. The credit union reported 0.32% ROA on March 31, 2017, the last day it used its old LOS. At year-end 2018, the credit union’s ROA had climbed to 0.70%.
“We have positioned ourselves well for continued growth in 2019,” Oldag concluded.