'Put a Pulse' to Every Loan

June 20, 2010

“Go to work.”

That’s Wayne Vann’s nonsense-free approach to running a credit union during times of financial distress. The president/CEO of $960 million asset Navy Army Credit Union, Corpus Christi, Texas, says despite the recession, there still are many members borrowing and depositing money.

“You can’t fold up your tent every time someone tells you the economy is horrible,” he says. “You have to go to work and get your people geared up. You’ll make some mistakes and have some chargeoffs. You’ll have lower quality come to you. This doesn’t mean they’re bad people or they won’t repay you. It means you’ll have to look at these members more closely.”

Vann says financial struggles are nothing new to Corpus Christi—an area with few high-tech employers or heavy manufacturing, where the median annual income is around $30,000.

Vann shares his approach to serving members during times of financial distress.

CU Mag: What economic challenges are facing your members and your CU?

Vann: South Texas is a predominately blue collar area that’s 65% Hispanic; mostly second- and third-generation families. We have no high-end, high-tech jobs and no heavy manufacturing, so the median income is in the low to mid $30,000 range. Our average credit score is something south of 600.

But this is an environment we operate in all the time; it’s not because of recessionary factors. A common comment around here is that it’s hard to tell when Corpus Christi is not in a recession.

But having said that, we have a lot of good, solid people and families here. They just, traditionally, don’t always take care of their retail credit, and they don’t have a lot of disposable income.

They use their income for household necessities so bills may get pushed aside. When you have that kind of median income it doesn’t take too many bumps in the road before your paycheck goes to other factors.

Next: Balancing risk and service

CU Magazine: How do you lend to members with less-than-stellar credit without assuming too much risk?

Vann: We leave loan decisions in the branches.We put a pulse to every loan. Our systems can support some auto decisioning and we have some filters to help the lender. But we don’t take the pulse out of the loan. 

When you’re dealing with people that have lower credit scores, you have to build relationships. You have to understand why their scores are what they are.

Many lenders have consolidated or centralized their loan approval process. They’re looking for consistency and risk avoidance. But I think the industry relies too much on credit scores and auto decisioning [when making loan decisions].

Many peoples’ credit scores are dropping not because of their behavior but because credit card companies are reducing their credit lines. That drives consumers’ credit scores down—and they didn’t do anything.

That has happened across the board as the credit card companies reel in their risk. The people they’re reeling in the risk on are probably those who need the line most.

As their credit scores decline, these people start falling out of credit “buckets” [tiers]. And who’s catching them?

We look at the member’s credit score but it’s not the determining factor. We look at members’ real ability [to repay] and their relationship with us. Then we look at credit score, then collateral. That’s how we build every application.

We have more than 40 lenders in our branches who make loan decisions within certain guidelines. Every branch has an anchor lender that will cover almost every loan request that hits the desk that particular day.

Our loan-to-share ratio is over 90% and 50% of our offerings are C and D credit. That’s where we make our money.

Next: Widening credit 'buckets'

CU Mag: How do you accommodate members whose credit scores have fallen?

Vann: We’ve widened our buckets. We have five credit buckets: A+, A, B,C, and D. I established an A+ bucket and widened our A and B buckets so they recognize more people who are good risks but whose credit scores may have fallen—not necessarily because of anything they did.

We don’t have high average credit scores to begin with. My A+ bucket starts at 700, where at most institutions it starts at 740 or above. We don’t have many people with 740 Beacon scores around here. We know our audience.

That’s the other side. Most people in this business really don’t know their audience. And if you don’t know your audience, how will you price and lend to it? If you think everyone across the U.S. fits these buckets, then you really don’t know your audience.

When you have someone at the branch making loan decisions, you build real relationships with members. When you have someone making centralized decisions, they’re just repeating what’s on the screen in front of them. There’s no sincerity.

All they’re doing is selling someone else’s decision that they may or may not agree with. They’re just a puppet repeating what someone else is telling them to say. That doesn’t work for me.

CU Mag: Sounds like traditional underwriting

Vann: Yes. We have members who’ve been with us for 25 to 30 years. Their lives change. But as long as their relationship with you hasn’t changed—they’ve treated you well and always met their obligations—why should you treat them differently?

Relationship, stability, and ability are the three primary factors we look at. Then we throw credit on top of those. But we already know that credit will be a challenge here.

We use credit score to show us the current trend and to price the loan. We throw members in a rate bucket and give them discounts for their relationship with us. We reward behavior that we want and upcharge behavior we don’t like.


Navy Army Credit Union obtained a community charter in January 2003 and has since quadrupled in size—without accompanying delinquency issues. Vann expects the credit union’s assets to exceed $1 billion by the third quarter.

Check back to see how Navy Army Credit Union made the transition to a community charter.