First Niagara Bank has wrapped up a six-month project to implement a new CMSI loan-origination system, overhauling its largely manual system and improving turnaround time.
Last month, Buffalo, N.Y.-based First Niagara migrated its 1,200 dealers onto thenew platform, which analyzes “a myriad” of factors to better price for risk, Vice President Craig Stickney told Auto Finance News.
“There are all kinds of efficiencies built into this platform that were all manual in our old platform,” Stickney said. “That’s the reason why it can improve our turnaround time so dramatically. What once took 35 to 45 minutes is now down to five or 10 minutes.”
The new LOS bolsters the volume of loans First Niagara can auto-decision. “Under the old LOS, we were at around 26%,” he said. “With the new LOS, we’ve gotten up to 36%. We’re hoping to get to about 42%. So you can see right away that it gives us lift, having analysts look at applications that they really need to look at versus the applications on the no-brainer side.”
Along with quicker decisioning, First Niagara expects to see improvement in dealer management. “This system will allow us to overlay a number of rules and policies that will either point the funder or the credit analyst in the right direction to say, ‘We’re missing something in the case of funding — we have to go back to the dealer, it’s over the rule,’ or ‘We have to send it back to credit for re-approval.’ In the case of credit, it points the credit officer in the right direction to say, ‘I need to connect the dots on this particular piece of missing information in order to approve the loan.’”
Quicker decisions often lead to higher loan volume. “Dealers let us know in no uncertain terms that the reason we didn’t get the deal if we approved it is because we weren’t fast enough,” he said. “It’s different, dealer by dealer, but a lot of times a dealer will tell us that they have to get a car delivered as fast as possible, so it’s the first bank that gets back to me that will get the deal. Rate isn’t necessarily the No. 1 criteria from their perspective.”
The LOS upgrade comes at a time of triple-digit growth for First Niagara. The bank has doubled its loan portfolio in the past year, crossing the $2-billion mark in March.
Auto Finance News spoke to Stickney about the bank’s growth plans in a highly competitive space. Here’s a portion of the conversation:
Auto Finance News: To what do you attribute the bank’s solid growth so far?
Craig Stickney: Very experienced people. We’ve done some significant volume. It’s a relatively un-mature portfolio — in other words, a lot of folks aren’t paying out. We’re still a bit more consumer-centric than we are collateral-centric. We’re looking at high Fico scores, giving people decent advances if they qualify for them.
We’re not near in near-prime or subprime; 620 and above is still our strategy. We did, however, take a little bit of step back in 2014, rolling back origination volume by around $150 million.
AFN: What are First Niagara’s expansion plans?
CS: We have on our slate to go into the state of Maryland within the next 45 days. Ohio would be our next target. It’s continuous to what we have in Pennsylvania. We’re not going to leapfrog to Oregon.
And we’re starting to look at alternatives to improve our overall portfolio balances and keep in touch with our promise of $1.2 billion to $1.3 billion in originations for 2014.
The bank is very interested in this product. We’ve done a pretty good job in delivering what we promised in terms of the credit quality, the numbers, the yield. It’s been tough, but we’ve delivered on most of our promises there, and at the end of the day, if we continue to grow the territories, which we need to do to continue to grow, it’ll be slow, it’ll be methodical, it’ll be one state at a time.
AFN: How do you develop your sales force in a new region?
CS: There’s a couple of things that go on. You need to hire folks familiar in the area that are well-trained in sales. We wouldn’t hire someone who doesn’t know the market. In Maryland, we just hired a person who has 30 years of experience in that market. So that person will come with a book of business and relationships, which allows us to ramp up that particular market relatively quickly.
In terms of additional credit people, for example, we know that the system will take care of a lot of this for us. So we’re not looking at additional expense as far as credit or funding, the emphasis is more on market presence in terms of sales as the additional expense.
I’m not saying that’s what would happen if we went into a state like Ohio, where it’s much larger than Maryland — you might need to rethink that position. But in terms of the scope of the market from a sales perspective, I wouldn’t hire anyone that doesn’t have a book of business and relationships that they could bring to the bank based on our product and our value proposition.
AFN: In the first quarter, First Niagara’s average credit score was 753. In the coming months, will the bank continue to work only with prime borrowers or might you dip down the credit ladder?
CS: In our original business plan, we always intended it to be prime. In our world, prime is anything that’s 660 and above.Near-prime, in my mind, would be anything from 660 to 620.
So about 12% of our business in the original business plan was to be that near-prime. We’ll probably do a bit more there, in the future, than what we’ve done in the past. The average 750-plus Fico score could possibly drop to 740 to 735, but I don’t expect it to go much deeper than that. We will continue to be a prime player.
With the new LOS, we can look at a lot more of those deals, and hopefully figure out a better solution in terms of rate, loan-to-value, and all those things as we start to build our empirical data, so that we can actually look at the performance.
AFN: How do you continue to grow in this increasingly competitive landscape?
CS: I attribute it to three things. The people we have. When you look at the sales organization, we have an average 22 years of dedicated average experience. In our credit department,
there’s 18 years of average experience. The people we hire, it’s a career, not a stepping stone. Thirdly, it’s the value proposition. The value proposition, we’re open 352 days a year, most nights
until 9 p.m. We have enough people on the desks so that the dealer can call us and actually have someone pick up the phone and work a deal. Most competitors don’t do that today. So, we’re not the lowest game in town in terms of rate — we’re kind of in the middle of the pack. It’s all about the service we deliver.
There’s more touch, both from a credit and sales perspective. Most of the salespeople bring 15-year dealer relationships to the bank. To say it simply, we look at the sales organization to bring in the first five to 10 deals, and the credit organization to try and nurture 40 or 50 deals from that dealership.
AFN: What will be the biggest challenge this year?
CS: To become more effective and efficient. With the electronic portals where they are today, and the black-box pricing, which is the empirically driven pricing that some of the big banks all have, dealerships are all too quick to shotgun out the application to the banks and just wait for the best return.
And, in any one given deal, everyone has a different idea about their empirical data and what the ultimate price will be. For example, we might be 2% or 2.5% on a deal, Chase might be 1.69%, and Bank of America might be 1.29%. So it’s very easy for a dealership to shotgun these applications and I’m used to — in my previous life at TD Auto — probably 50% to 60% of our approvals were cashed. The norm today is half that number. So that’s No. 1.
But No. 2 is sort of a corollary to that: it’s the margins themselves. The amount of profi tability that we can derive from auto fi nance has decreased pretty dramatically in the last couple of years, because of the competition. Our expenses have risen at the same time, driving more applications and cashing fewer contracts.
We don’t have the ability to cut our expenses. Because Dealertrack and Route One are raising their prices, we’re paying credit analysts and salespeople more each year, so our costs are going up while our margins are decreasing. So something has to give somewhere.
