HONOLULU–The world’s largest credit union may have added $60 billion in assets in 12 years, but its CEO says the secret to its success comes down to one premise: “Always do the right thing.”
Cutler Dawson, who has been CEO of Navy Federal for the past 12 years has overseen growth from $22 billion to $83 billion in assets (and 7.2 million members and 15,000 employees), told NAFCU’s annual meeting here: “Our premise has always been member service. We haven’t just grown to grow. We don’t have all the answers. We are always searching for the answers, and I think that’s a healthy thing.”
Cutler Dawson speaking to NAFCU meeting.
Reviewing some of the key decisions he said have helped to drive growth while he’s been at Navy Federal, Dawson cited the following:
2005: Move Into Risk-Based Lending and Advanced Risk Modeling
“Risk based lending was one of the big decisions we made when I got there. Culturally, we had always been opposed to it. But we did some analysis and said we’re losing all our ‘A’ members who are going elsewhere, and if we go to risk-based lending we can say yes to more members. It carried us through the Great Recession. But with risk-based lending we knew we had to do better modeling of risk."
2008: FHLB Atlanta Partnership
“We were making mortgages, but we weren’t making any money in mortgages,” said Dawson. “We went to Fannie and Freddie and said we need better pricing, and they said the model didn’t support it. So, I said, ‘We’ll figure out a way to hold more mortgages in portfolio. We never sell the servicing rights to our mortgages.’ That also stands us well, because we make the loan and we are with that member from start to finish. During the Great Recession, we did fairly well helping people work through any problems they might have. The FHLB Atlanta helped us develop a matched borrowing regimen that helped us to lay off risk.”
2009: Launch of Mobile App
“We were an early adapter and we really didn’t recognize how much it would take off and accelerate,” said Dawson. “Today, mobile touches are the greatest number of touches we have at Navy Federal, by far. They far exceed the number of folks going online. Our next effort is we have to get our mobile experience to look like the online experience.”
2011: 10-Minute Car Loan and Swaps
“When I got to Navy Federal, it might take two or three days to get a loan. In 2012, I’m here in Honolulu and I visit our branch in Pearl Harbor, and there is a young sailor who is refinancing his car loan. I ask him, ‘What’s your current car loan rate?’ He says it’s 18%. I got an email eight minutes later (from the loan officer) and it said the loan is approved and his new rate is 3.26%, and we’ve already cut him the check. Think about the difference my credit union, your credit union, made in his life. And then think about the institution that gave him an 18% car loan."
Navy Federal's expanded facilities in Pensacola, Fla.
Swaps
“We decided we were going to hold more things on our balance sheet, so we had to get even better at managing the balance sheet and laying off interest rate risk,” said Dawson. “But Navy Federal is a very conservative institution. It’s in our DNA. Every time we work on something like this we think about it, we vet it with the board, and then we tell the board we will be back.”
2013: Credit Cards Made Simple
“We said, ‘OK, our credit cards are not simple.’ Our own employees couldn’t describe to a member what the best credit card for them would be. So, we simplified our offer with a 1.5% cash back, green card. All the products were simple and designed for people with different needs. Employees could than say ‘This is the one for you.’ Now we have $13 billion in credit card receivables. We keep it simple.”
2016: Apple Pay, Debit Card Instant Issuance, and Private Student Loans
“The message there was Apple Pay is pretty cool—at the time. To be the first actually meant more to our employees than our members. One thing that did mean a lot to our members was debit card instant issuance. Those young soldiers and sailors lose a lot of debit cards. We wish they didn’t. But we wanted to get a new debit card into their hands as fast as possible, and it’s been a home run.”
Private student lending, added Dawson, “has worked out very well for us.”
Other Key Decisions
Dawson said there have been numerous other key decisions that have fueled Navy Federal’s spectacular growth.
For instance, in 2005 it launched a hiring and branching surge after discovering hold-times at its call center could be as long as 45 minutes.
“We had 103 branches (at the time); we provided a plan to the board to provide better service, and they gave us permission to spend money. And we went from an average time of 45 minutes to 45 seconds. We offer a 10-minute loan; people don’t wait, they want it now.”
Dawson said Navy Federal didn’t just hire more people, it also invested more in them. He said when he was hired he was told by the credit union’s chairman that the number-one criterion in choosing a CEO was someone “who would take good care of the employees.”
Creating a Good Environment
“If you can create an environment that is good for employees, it’s going to be great for members,” he said. “In 84 years at Navy Federal, we’ve never had a layoff. We believe that loyalty goes two ways. And if you want quality people you have to compensate them, and that has helped.”
Dawson noted Navy Federal was founded by seven people who pooled $450. Now it measures assets in the tens of billions. “We have evolved over the years, and we have been very fortunate that we have had a path to membership growth,” said Dawson. “I would encourage all of you to think what paths can I take.”
Are You Ready For Some...Television Advertising?
Scene from Navy Federal TV commercial.
Among the paths it has pursued is expanding its FOM to all Department of Defense employees.
It has promoted that membership eligibility with national television advertising that has been highly visible, including during Monday Night Football. Navy Federal uses Atlanta-based agency Fitzgerald for the TV spots.
“They took great strides to get to know us,” said Dawson. "A little-known fact is I have to approve every TV ad. I said we don’t want to make people look foolish, and we want to make military people look like they are regular everyday people, which they are, who just happen to do extraordinary things.”
Underpinning all that, said Dawson, is the credit union’s motto: “Always do the right thing.”
Other Lessons & Observations
Among some of the other lessons and observations shared by Dawson during the NAFCU meeting:
- “We’ve learned that staffing levels are critical and you have to make the investment when the time is right. We have 300 branches around the world and committed to adding 20 branches per year for the near future. It’s my belief that branches are a long way away from being obsolete.”
- “At Navy Federal we don’t force-steer our members to a channel they aren’t comfortable with. It is interesting to watch. Our members are motivated by different things.”
- We are focused on continuous product innovations. “What do our people want to see next? The latest innovation for us is an auto loan on the mobile phone. We want to find ways to say ‘yes’ to our members. You don’t make anybody happy by saying no to a loan; sometimes you do have to. But sometimes it’s OK to make a mistake. If one loan goes bad, 10 are going to go well.”
- Navy Federal has worked to recruit and retain the best and brightest, he said. “We have worked hard to be a good place to work. Being on the Fortune 100 Best Places to Work helps us to recruit new employees. So, what do you have that says, ‘This is a good place to come to work’?”
- “Engaged employees = engaged members.”
Navy Federal's Focus
Looking at what’s ahead for Navy Federal, Dawson said the focus is on:
- Adapting to regulatory environment. “It’s here to stay.”
- Satisfying the changing demands, needs and lifestyles of our membership. “I don’t know where it’s going to go. You don’t have to be first in a space, but you do need to get there. And no one can tell you how to do it; you have to figure it out.”
- Attracting motivated employees. “It all starts with them.”
- Responding to increasing complexity. “Things are going to get more complex. Our biggest challenge at Navy Federal is in IT. We can’t go fast enough.
Cutler Dawson's Focus
As for what’s most important to him, Dawson said it includes:
- Open communication with the board. “What I mean by that is we are very fortunate at Navy Federal in that we have a board that lets us play on the football field. I’m the quarterback and I’m calling the plays, and the board makes sure we are in-bounds. They don’t tell us how to make the individual plays. They trust, but verify, that we are on that field. I also try to make sure there are no surprises for that board.”
- Open communication with employees. “If you are at Navy Federal, you will hear me say to my folks, ‘I will tell you everything I know.’ And I will say, ‘But, you can’t tell anyone outside Navy Federal.’”
- Look at things through members’ eyes.
- Only offer products employees can be proud to present.
- Do the right thing.