Key Success Factors for Member Business Services

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Key Success FactorsforMember Business Services

• Patrick M. Spencer
• Credit Union Solutions Manager
• Baker Hill Corporation
• pspencer_at_bakerhill.com
• www.bakerhill.com
• [phone] Ext. 1838

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Pat Spencer, Credit Union Solutions Manager

• Experience
• Bank One, NA
• Retail Branch Management
• Retail Sales Management
• Commercial Lending
• Key Bank,NA
• Retail Branch Management
• Private Banking
• Commercial Lending
• FORUM Credit Union
• Business Services Manager
• Formalize Business Plan
• Develop Products/Services
• Hire Staffing
• Build Loan/Deposit Portfolio
• Baker Hill Corporation
• Software Sales to Credit Unions and Community
  Banks
• Project Consulting
• Process Evaluation Management

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Baker Hill History

• Lending Technology and Project Management
  Expertise
• 21 years of lending focus
• Knowledgeable and dedicated group of
  professionals with significant consumer and
  business lending experience
• Comprehensive end-to-end solutions
• Integration of front-office, back-office and
  total relationship
• Profitable and financially stable (Privately
  owned, no Venture Capital)
• More Than 1,200 Clients
• 5 of top 20 banks
• 14 of top 50 banks
• 35 Credit Unions (8 over 1 billion in assets)
• Core Competencies
• Formal strategic alliances with industry leaders
• Expertise in Commercial Lending
• Technology

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Key Success Factors. . .

• What happens when Key Success Factors are not
  considered when your credit union decides to do
  Member Business Services?

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What are the common pitfalls in Member Business
Lending today?

• Management likes the idea of offering Member
  Business Lending, but does not follow through
  with the necessary investment to build a
  successful department.
• Lack of communication inhibits growth
• Inadequate Staffing creates turnover
• Lack of Capital creates inefficiency
• How does this affect the Business Member?

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What are the common pitfalls in Member Business
Lending today?

• Products and services being offered cannot be
  supported by the credit union infrastructure
• Technology does not support your product line
• Personnel do not have the training or expertise
  to support the new product line
• Business Members become frustrated with
  inadequacy
• How does this affect the Business Member?

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What are the common pitfalls in Member Business
Lending today?

• Credit Union underestimates the time and
  investment associated with managing a growing
  commercial loan portfolio.
• Updating Financial Information is inconsistent
• Maintaining proper collateral position is
  challenging (Insurance, UCCs, etc.)
• Turnaround time for loan approval is at an
  unacceptable rate to Business Members
• External Auditors degrade condition of portfolio
• How does this affect the Business Member?

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• Success rests not only on ability, but upon
  commitment, loyalty
• and pride.
• Vince Lombardi

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What does the Business Member want?

• Responsive service
• Good communication from the lender
• A trusted and experienced advisor
• Good product/service selection
• If the product does not exist now, when will it?
• Accurate, concise and user friendly reporting on
  their accounts on a periodic basis
• Easy access to their accounts
• Branches
• Website
• Call Center
• Fair Pricing
• Sounds simple. . .

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Whats it take to get started?

• A Business Plan
• Mission Statement
• Business Services Offered
• Goals
• Staffing
• Technology
• Workflow Process
• . . . Business Planning is the primary Key
  Success Factor.

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Whats in a Mission Statement?

• Reason for initiating Member Business Services
• Overall Goals of the program
• Dedication to Member Service
• Senior Management commitment to the success of
  the program
• Targeted market for the program
• The results of a successful program
• The affect on your community
• What the business owner can expect

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Why discuss the Business Services to be offered?

• Here is a sample. . .
• Loans
• Micro Business Lending
• Small Business Lending (lt 250K)
• Commercial Lending (gt 250)
• Church Lending
• SBA Lending (7(a), 504, etc.)
• Commercial Real Estate Lending
• Investment Real Estate Lending
• Stand-By/Documentary Letters of Credit
• Beware becoming a Lender of Last Resort
• Deposits
• Checking
• Savings
• CDs

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Why discuss the Business Services to be offered?

• Other Business Services
• Night Depository
• Merchant Services
• Payroll Services
• ACH Origination
• Domestic/International Wires
• Equipment Leasing
• Credit Life Disability
• Cash Management
• Interest Bearing Checking/Sweep Accounts
• Account Analysis

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Why discuss the Business Services to be offered?

• The Business Services you decide to offer become
  the blueprint for the department you need to
  build. For example. . .
• Retail Small Business Services Provider
• Department Involvement
• Branches
• Members Services
• Call Center
• Business Services
• Types of Loans
• Smaller average size loans require
• More people to deliver and sell the product
• Less experienced staff (SBA is the exception, SBA
  requires very experienced staff)
• More people to manage and monitor the portfolio
• Diverse Product Set
• Credit Card
• Overdraft Lines of Credit
• Business Vehicle Loan
• Lines of Credit / Term Loans

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Why are Goals important?

• Business Services Goals will dictate the
  following. . .
• Investment and capital necessary to sustain the
  growth
• Staffing required to manage the growth
• Technology required to establish a stable
  infrastructure
• Marketing strategy necessary to increase
  awareness to members and the community
• Training and development to educate the credit
  union culture on how to effectively work with
  business owners.
• Goals should be established for a 3-5 year
  plan.

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Why is Staffing so important?

• Staffing is critical to the long term success and
  stability of the department
• This is a key area where credit unions are
  failing to establish themselves
• Hiring one commercial lender does not make a
  Business Services Department
• A successful department should initially be
  staffed with the following
• Business Services Manager (80K)
• Sales Commercial Lenders (70K)
• Credit Credit Analyst (60K)
• Operations Operations Assistants (40K)

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Why is Staffing so important?

• The business plan should project necessary
  staffing for 3 5 years
• Credit unions are beginning to experience
  turnover with the commercial lenders they have
  hired
• This can be detrimental in the infant stages of a
  new Business Services department
• Must be willing to hire the appropriate expertise
• Credit unions have a special and unique culture.
  . . Make sure you hire the right fit for your
  culture

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What role does Technology play in Business
Services?

• Most credit unions do not have the right
  technology to sustain the long term growth of a
  Business Services department
• Must complete a thorough technology review prior
  to initiating Business Services (or as soon as
  you can)
• Core Processor (Loans Deposits)
• Sales Management (Pipeline Management)
• Credit Analysis (Statement Analysis vs. Credit
  Scoring)
• Portfolio Management (Tracking, Ticklers, etc.)
• Document Preparation (Compliance Protection)
• Automated Loan Origination (Workflow Efficiency)

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What role does Technology play in Business
Services?

• What should your technology do for you?
• Reduce data redundancy
• Automate your processes
• Improve efficiency
• Increase volume
• Higher profit margin
• Allow for less staffing with growth
• Save time and money
• Integrate with other products (Key Success
  Factor)

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Can a Workflow Process Evaluation make any
difference?

• A Workflow Process Evaluation studies how each
  loan or deposit is delivered to the business
  member and the steps necessary to make it an
  efficient process
• Credit unions cannot assume a history of success
  delivering consumer products will automatically
  translate to business products without studying
  the variables of business products

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Can a Workflow Process Evaluation make any
difference?

• Issues to review
• Business member location
• Delivery Channels
• Application Data Gathering
• Centralized vs. Decentralized
• Underwriting Process
• Loan Type
• Loan Dollar Amount
• Approval Process
• Document Preparation Closing
• Booking Servicing
• Portfolio Monitoring Review
• Stages of Commercial Lending

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What have we learned. . . ?

• Understand Senior Management and the Board of
  Directors Philosophy toward building this new
  line of business
• Total Spending? Is Senior Management Ready?
• Estimates from 200,000 - 500,000 in first 3
  years
• Personnel Related Costs?
• Hiring Internally (Proceed with Caution)
• Hiring from Commercial Banks (Proceed with
  Caution)
• Current Technology? Technology Investment?
• Product Support?
• Technology
• Delivery Channels
• Process Efficiency? (Critical)
• The Business Services Manager must be experienced
  and have direct access to Senior Management and
  the Board. Keeping this position in middle
  management as a new business line can stagnate
  and inhibit the process.

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But what about a CUSO. . . ?

• CUSOs represent excellent opportunities for
  credit unions to pool resources and diversify
  risk in initiating a Member Business Lending
  strategy
• However, the key is how does the individual
  credit union want to represent its own business
  members and, what products and services fit
  their particular market. . . do you homework
• Prevailing CUSO strategies
• Regional Collaboration
• National Providers
• Corporate Service Providers
• The same strategy applies to CUSOs as to
  individual credit unions. . . you must have a
  Business Plan!

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Regional Collaboration

• Group of local credit unions form CUSO to create
  the equivalent of a regional commercial lending
  department to service a broader territory
• Example The Business Lending Group (Wisconsin)
• Advantages
• Focused on specific territory
• Products, services and pricing are compatible
  with the market
• Disadvantages
• Stepping on each others toes. . .

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National Providers

• Group of credit unions form CUSO to sell
  products, loan underwriting, loan servicing and
  portfolio monitoring services to credit unions
  across the country
• Example Members Business Services (California)
• Advantages
• Experienced commercial lenders
• Available for individual credit unions
• Disadvantages
• Knowledge of your market

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Corporate Service Providers

• Corporate Credit Union forms/buys CUSO to provide
  underwriting and loan servicing to credit unions
  across the country
• Example CU Business Group (Oregon)
• Advantages
• Experienced commercial lenders
• Disadvantages
• Knowledge of your market
• Limited MBL services (no products to sell)

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What have we learned. . . ?

• Treat the department as a new business. . .
• Business Plan
• Projected Costs
• Human Resources
• Technology
• Marketing Strategy
• Advertising/Promotion (Brochures, applications,
  etc.)
• Products/Services Offered (This is a strategy by
  itself)
• Financial Reports
• Income Statement/Balance Sheet
• Decide the role technology will play in your
  success
• Do your homework!

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Thank you for your time today and good luck with
this exciting new opportunity!

• Patrick M. Spencer
• Credit Union Solutions Manager
• Baker Hill Corporation
• pspencer_at_bakerhill.com
• www.bakerhill.com
• [phone] Ext. 1838