When The Going Got Tough...Process Made Easier

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VIENNA, Va.-At a time when many financial institutions were making loans more difficult for consumers to get, Navy Federal Credit Union took a different tack.

According to John Peden, the CU's chief operating officer, management realized its members' need to borrow would be greater during tough times, so Navy Fed made the process easier.

"At the 100,000-foot level that's what we did: we worked hard to lend," he assessed. "We made $6.5 billion in mortgages and $5 billion in consumer loans."

This lending surge helped Navy Federal generate $321 million in income in 2009. Its ROA was 85 basis points for the 12-month period, which Peden characterized as "a pretty good year under the circumstances."

Navy Federal is, by a healthy margin, the world's largest credit union. It has $40 billion in assets, 3.4 million members, 180 branches and more than 7,100 employees worldwide. But Peden said the same principles that guide other CUs apply at Navy Federal.

"The reason all credit unions exist is giving good member service, and that is the same here," he said. "We think of ourselves as a big-little credit union. We are a single-occupational credit union, and there aren't that many of those left. We serve the military. We don't pursue growth for growth's sake-we believe if we have good products and deliver them with exceptional member service, growth will take care of itself."

On a similar note, Peden said Navy faces the same two choices as most credit unions for generating income: invest or make loans to its members.

"And we choose to make loans," he said. "In tough times, credit unions look to their members. They need to refinance their mortgage, they need to get a credit card or expand their line of credit, get a used car, or perhaps consolidate debt, and the credit union needs to be there for the membership. Similarly, people that already have loans with the credit union require spending more energy for loans it has made in the past-they need help to get over the hump during tough times."

To achieve the latter goal, Navy Federal initiated workout programs on all of its lines for certain members. Peden said the credit union looked at each member individually to review their financial circumstances and seek to create a workout program to get them through the recession. For some this meant relief on interest; for others, expanded terms to stretch out the loan.

Navy Federal was able to accomplish many of its workout goals not because of its size advantage, Peden continued, but because of its credit union charter. He said people like to paint all financial institutions with the same brush, but credit unions "are not in the same boat as banks," because CUs know their members better than banks know their customers and can tailor their products to fit the situation and the market.

Familiarity Breeds Loans
As an example, he noted the entire financial industry is looking for more documentation on loans and is making it difficult to borrow, but credit unions have opportunities in areas such as mortgages simply because they know their members.

"The idea is to get people through tough times, which helps build loyalty and trust between the credit union and its members-which is supposed to be what it is all about," he said. "This helps to minimize losses by keeping down charge-offs and delinquencies. The member is kept on his feet down the road, and that is applicable to any credit union, big or small."

Navy Federal did not institute any draconian expense-saving procedures during the recession because, as Peden put it, "a credit union cannot cost-cut its way to success."

"We have always run a lean shop, and I think most credit unions are like that," he said. "In tough times we can find a few things, but it is not a good idea to make cuts that impact the business-can't serve the members, can't answer the phones."

With that said, Navy Federal did find a silver lining in the black cloud that was the economy in 2009. It built 10 new branches and renovated five, and because the construction industry was in such disarray Peden said it saved approximately 30% on building costs.

"There is still a great opportunity to do so for credit unions that want to invest," he advised. "Similarly, it is a great time to hire very well-qualified people."

Because of Navy Fed's size it does receive "some degree of advantageous pricing," Peden acknowledged. He said this is evident when it buys computers or software, or credit cards because it has so many accounts. But contrary to popular belief it does not get that big of a break on, say, office supplies. "For a credit union even one-tenth our size, if it manages its relationships well, it should be able to competitively bid. If it has good, long-term relationships it should get good prices."

Navy Federal participates in the University of Michigan's Customer Satisfaction Index, and in the most recent poll it was ranked among the leaders, which included Amazon, FedEx, BMW, Lexus and Coca-Cola.

"We are very proud of that," he said. "We are significantly higher than bank ratings because we put service to the members and the members first. Most credit unions feel the same way. You need to be unwavering in that commitment in good financial times and bad financial times. In bad financial times you need to step up more. I've been at Navy Federal for 35 years now, and we are the same today as we were 35 years ago in our commitment to member service-the size of the organization is irrelevant to that. There is a special passion in credit union people for service. We were successful last year because we stick to that commitment."

Working at Navy Federal brings a "special benefit" to its employees because they are looking out for the military-the people who are taking care of our country, he added. "There is a lot of stress and families have financial problems, and they count on us to take care of it. What we do is important."

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