Looking to Boost Lending? Start by Looking at Key Ratios

Ray Birch
April 16, 2009 | COMMENTS

To improve loan department efficiency, the credit union needs to examine ratios showing net income per loan and net income per loan officer.

Those metrics provide the data that allows management to make sound staffing decisions and streamline loan operations, suggested Brian Lynch, president of Advantage Systems in Irvine, California. "You need that level of granularity," he said.

The numbers help the credit union learn what it costs to deliver each loan, how much money a loan made (or lost), which type of loans are working best, and which loan officers are performing at a high level, Lynch said. "There's a lot you can get to if the numbers are recorded down to the loan level. If the numbers are not down to the loan level, then it's all just kind of a wink and a nod and a guess as to how things are going in the loan department."

Lynch contended that credit union loan departments are too often mired in data, much of that due to spreadsheets.

"Most accounting systems are not geared to do loan-level accounting," Lynch said. "So it forces the company to work in spreadsheets. Anytime you work in spreadsheets you either have one person creating this uber-spreadsheet of all the loan level activity, or you have multiple people entering independent spreadsheets. Both approaches are time consuming and not very reliable because of all of the data that's entered by hand. It becomes very labor intensive to do the accounting and does not lead to a great deal of cross-reporting."

Lynch said a credit union needs accounting software to get "down to loan level data." Advantage Systems' Accounting for Mortgage Bankers (AMB) software helps credit unions mine that data. "There is a lot of detail in the mortgage business and people tend just to record the transaction. So the general ledger gets sort of the right numbers, but not a great deal of detail. Our system allows you to import data at the loan level and gives credit unions the details to support the GL numbers."

With the ability to see which loan officers are producing the highest volume of loans and at the highest quality, the credit union not only can make staffing adjustments, but share best practices. "Since you know who your best producers are-based on the net income per loan and the speed at which they go through the system-you can have other employees model their behaviors," Lynch said.

That same approach, Lynch added, can be used to compare performance between branches. AMB is a client-server-hosted application, and credit unions can get started with the product for a price "slightly north of $10,000," said Lynch, who explained the actual costs depend on the number of users.

This article appeared at www.cujournal.com and is reprinted with permission.