[00:00:00] Devon Lyon: I do not fundamentally agree with indirect lending. When you look at what it can do to your balance sheet, the difficulties you have sometimes with funding those products, especially in a a rising rate environment or a steady high rate environment, your. Margin compression is, is going to be a real thing.

[00:00:23] Narrator: Welcome to 22 minutes in lending your Go-to podcast for insights on all things lending from lending practices, regulatory updates, how to enhance lending efforts and more. In each episode, Vince Paone connects with industry leaders to discuss the latest trends and happenings around the lending industry.

[00:00:42] Narrator: Let’s dive in to the latest in lending.

[00:00:47] Vince Passione: Welcome back to 22 Minutes in Lending. I’m your host, Vince Passione, and today we’re joined by Devon Lyon, the president and CEO of Central one Federal Credit Union. Devon brings a fresh, operationally driven perspective to the lending conversation, pulling from a deep background in compliance risk and member experience.

[00:01:02] Vince Passione: He’s spent years helping credit unions transform their operations, and now he’s turned that expertise towards lending innovation. Devin, thanks for joining us. Thank

[00:01:10] Devon Lyon: you for having me.

[00:01:11] Vince Passione: Pleasure to be here. Awesome. So Deb, let’s start off with, tell us about Central one. Tell us about your membership, the communities that you serve.

[00:01:18] Vince Passione: I know you’ve been on board now since 2022, so there’s probably a little bit of a transitional journey for you, so talk to us about it.

[00:01:25] Devon Lyon: Yeah. Central one, it’s, it’s been an outstanding journey and in fact this year it’s, it took a different leap, right? We did a rebrand, uh, that launched in May. We also completely revamped our website.

[00:01:39] Devon Lyon: You know, we, we had a, an oak leaf as the logo for a long period of time, and now we have the shield that that makes us see. And in Massachusetts, it’s one of the most competitive markets in the country, right? And you have a lot of mega banks. You have a couple of neobanks and a ton of credit unions, over 80 credit unions between state and federal charters and Massachusetts alone, I.

[00:02:06] Devon Lyon: So at Central one we, we really took a look at what makes sense and what resonates in our market, and that’s when we launched our Wicked Local banking tagline that’s now trademarked, is we wanted to double down on being local, being in our communities, and really taking a look at strengthening.

[00:02:28] Devon Lyon: Everything that we touch. So at Central one we like to say, you know, we provide banking as it should be, local decisions, meaningful relationships, and a commitment to the places we call home. Obviously, like most credit unions, we reinvest our earnings to deliver better services, but we wanna strengthen your financial journey and the community.

[00:02:48] Devon Lyon: We make sure that because our members are our owners. That makes all the difference in how we do things as an organization in central Massachusetts between Worcester, Norfolk, and Middlesex County. The communities that we serve, we wanna be known as a for impact organization, whether it’s through our lending, our deposit gathering, our financial literacy, or our philanthropic efforts.

[00:03:15] Vince Passione: Now talk about Worcester. You know, I’ve, I’ve, I’ve had a chance to go on campus. I guess Clark University is right in your backyard, aren’t they? Yes, it is. Yeah. And, and that’s an area I was doing some research before the call, right. Poverty rate is pretty high. It’s, it’s about double the state average, about 20%.

[00:03:30] Vince Passione: How does that impact the way you view member services? So, when we

[00:03:35] Devon Lyon: are grafting our products and services, I wanna make sure that no one in our communities are left behind. So we have created specific products that address. All phases of life. We, this year, which is brand new, we’ve started with the the Massachusetts Heat Loans.

[00:03:56] Devon Lyon: Uh, that’s been wild successful. We have just launched a credit builder product to help people who are either traditionally underbanked or non banked to help folks with either thin credit profiles or. Damaged Reddit profiles to really come in, engage with central one, and to help them through their lending journey, get to better credit tiers and better credit quality.

[00:04:30] Devon Lyon: We’ve worked very hard to, can I stop you

[00:04:32] Jim Merrill: for a second? Because its

[00:04:33] Vince Passione: been filed situations, there’s a lot of conversations about Yes. Thin file, damaged credit. Clearly, highly regulated, highly scrutinized. We hear about cash flow underwriters like, like Nova Credit. Uh, we’ve got folks that are now hap uh, like bloom credit that are allowing you to bring in your, your bill payment if you want to Right.

[00:04:53] Vince Passione: Your wrench. What, what are you doing on that thin file specifically to help boost credit? So we are

[00:05:00] Devon Lyon: currently in the process of doing a full RFP for an additional underwriting engine. Will ride alongside our traditional LOS to help us bring in additional data points and leverage some AI spec specified underwriting so we can find ways to say yes to a deeper portion of our membership.

[00:05:30] Devon Lyon: We feel that some of the, the traditional. Underwriting metrics are extremely valid, but in order to be able to help as many people as we can, it’s, it’s clear to us that our underwriting ability and analysis needs to cast a wider net.

[00:05:51] Vince Passione: So, um, when I think about that, it triggered me on the lending products.

[00:05:54] Vince Passione: So look at, you’ve got a pretty diverse portfolio. Um, we’ll start with education lending, which is near and dear to my heart. Yes. So thank you for, for, for being one of those trailblazers and being in education lending. Yes. Uh, so you got about $5 million or thereof of non, non-federal guaranteed loans.

[00:06:13] Vince Passione: When did you start, what was the motivation? What have you learned on that? Because from a life stage perspective, I see that as the entry product. And then I want to ask about the education refinance product and how you, how you tie that into life stage financial planning.

[00:06:28] Devon Lyon: Yeah.

[00:06:28] Vince Passione: Um,

[00:06:30] Devon Lyon: student loans were set up before I came to Central one.

[00:06:33] Devon Lyon: That was the, the previous, uh, CEO and the current SVP of lending, recognizing a need and having a, a program available,

[00:06:44] Vince Passione: especially where you are. Right. And that’s right.

[00:06:46] Devon Lyon: I mean, there’s, there’s a mo We are spoiled for choice in Massachusetts for educational opportunities of all types. So. One thing we’re currently investigating is does our current commitment to educational lending match what we’re going to see as needs going forward?

[00:07:07] Devon Lyon: And that’s in terms of, of duration, in terms of amount available, in terms of some co-signing abilities. So that’s something we’re looking at, again, using data, using our expanded field of membership. Do we need to do more in that space? The answer’s probably leaning towards Yes. In terms of answering, how do we see that as an entry product?

[00:07:31] Devon Lyon: It’s unique. There’s some folks that joined the credit union that will say, I joined my credit union because I needed an auto alum. That’s seemingly the gateway drug that a lot of people say. That’s how I started at the credit union. Right. Indirect lending. Right. Which. I will get to that in a second, which we do not do a lot of very strategically why, but for educational lending, it is something that I want available to the, the parents in our field of membership, their children, and then future members to know that, that we have a product that is essentially sometimes the start of a lot of people’s financial journey

[00:08:15] Vince Passione: and, and today.

[00:08:17] Vince Passione: Why do you think that more credit unions aren’t doing education lending?

[00:08:22] Devon Lyon: There’s two very diametric differences on why a lot don’t. The, the biggest problem, and this is where credit unions, ourselves included, are not as competitive as we could be, is because of our statutory length of loan. Right now, credit unions under the Federal Credit Union Act.

[00:08:47] Devon Lyon: Can only write loans for 15 years. Right. So a lot of private student lenders, 20, 25, 30 years. So our amortization schedule on student loans is higher than it is on on others. So it makes those payments a a little bit harder. We’re not as competitive working with A CU, which is our federal trade, and working with the CCUA, which is the, the New England State League.

[00:09:17] Devon Lyon: We’re lobbying to try to get an expansion to either 20 or 25 years. So I think a lot of credit unions, very much on its face will say, we’re already at a disadvantage in how we have to write these. So if we know that going into a product. What would the take rate be? And is the juice gonna be kind of worth the squeeze?

[00:09:42] Devon Lyon: So I think a lot of lenders in the credit union space hide behind that decision.

[00:09:48] Vince Passione: No, that’s good insight. Really good insight. Alright, let’s switch up Second near and dear to my heart Auto. From my history as a deal, my history at Dealertrack. So you’re not an indirect auto lender, you’re a direct auto lender.

[00:09:59] Vince Passione: Is that what I should be taking away from your comment earlier?

[00:10:02] Devon Lyon: We are heavily direct. We have a very, very, very small indirect. Uh, presence. I am a, a strong proponent of direct lending. I do not fundamentally agree with indirect lending. I think that there are a number of credit unions that do it very well.

[00:10:27] Devon Lyon: I. But I think when you look at what it can do to your balance sheet, the difficulties you have sometimes with funding those products, especially in a a rising rate environment or a steady high rate environment, where if you’re not getting low cost funding in and you’re having to fund a robust indirect lending portfolio, you’re, you’re.

[00:10:56] Devon Lyon: Margin compression is, is going to be a real thing. Typically delinquencies based on every study and, and true data, indirect delinquencies tend to be higher than direct relationships. And then you have this juxtaposition of your putting a lot of owner voter shares on your books, but then these. Amount of marketing dollars and time you spend to try to convert an indirect relationship to actually know who and what your credit union is, and then engage with them more like a direct relationship would.

[00:11:37] Devon Lyon: You’re, you’re, it’s bad money chasing it, right? Because you, you get this one to 2% lift on people who will ever engage you for a second or even a third product. I just view that as too much volatility on the balance sheet. I would rather us really get. Good direct loans on the books.

[00:12:03] Jim Merrill: This is Jim Merrill, president and CEO of Inspire Federal Credit Union. For the last 13 years, we’ve partnered with LendKey to elevate our lending services and strengthen our commitment to providing the best. Financial solutions for our members. The team at LendKey is not only knowledgeable and responsive, but also genuinely committed to our success.

[00:12:25] Jim Merrill: They have empowered us to better serve our members and have been a true partner, not just another vendor.

[00:12:34] Vince Passione: So let’s, let’s move mortgages. Big party, your portfolio, $450 million. Very large for you. Yes. Tell us how it’s structured. How much is fixed, how much are arms, and then how do you manage that the, the credit risk.

[00:12:46] Devon Lyon: So with, with us to manage credit risk, we, we do the majority is variable rate. Yeah. Um, it’s, it’s a very, it’s a very good product for us. We have a, a number of different options in the variable rate portfolio. We do not do a ton of, of fixed rate. And the reason being is again. Business decision, balance sheet, risk management, fixed rate in in different environments.

[00:13:14] Devon Lyon: Sometimes you’re gonna make a little more, sometimes you’re gonna make a little less, but you don’t have long-term risk on your books in terms of, Hey, it’s a low rate environment. We’re putting a lot of 30, 40, 50 year fixed, sorry, 40 year fixed mortgages on the books. And then you have a raising rate environment, and then you have, uh.

[00:13:34] Devon Lyon: Decent portion of your portfolio that’s underwater. You can’t participate that out, you know, unless you take a loss. So we, we like our, our variable rate products. It allows us to pull some different levers and take advantage of some higher rate environments and keep us competitive and lower rate environments.

[00:13:57] Devon Lyon: And each time it gives the member the maximum availability to say. Which product works for them.

[00:14:06] Vince Passione: That’s great. And the link we a low across the board is this just, hey, because I am, you know, following on your strategy of it’s direct lending, it’s to my member the social pack of, you know, social finance, which is credit unions are built on, is this, this, the of the result of that.

[00:14:23] Devon Lyon: It’s partially the result of that. The other thing we have is an incredibly. Efficient Member Solutions team, and this is a team that works with borrowers. Before they get into issues and it either works with modifications or changes for folks to ensure that they don’t end up in a cycle where you have to do a foreclosure, you end up with a delinquency.

[00:14:55] Devon Lyon: That helps with both of our, our financial education and working with the members because look, it’s. It’s not enough to say we’re gonna be there when everything’s going well in your life, and you take a loan from us, and then six months to a year later you’ve had a life event and now you’re potentially in some financial difficulty for us to say, well, you know, it is what it is, and.

[00:15:24] Devon Lyon: We’re just gonna go either to a foreclosure or continue delinquency. No, it’s, it’s all life stages. It’s like for better or worse. And the member solutions team does an amazing job managing and assisting folks through that process.

[00:15:39] Vince Passione: Let’s jump to deposits, ’cause I think there’s something to be learned here for our listeners.

[00:15:43] Vince Passione: So 50 basis points, how do you do it?

[00:15:48] Devon Lyon: Like everyone, 20, 23, 24 was, it was the famine of the feast, right? Yeah. You everyone was running deposit specials. We were no different, so we brought in a significant amount of very high price CDs. At the, the same time, we had a number of long-term investments that were coming back due to us.

[00:16:16] Devon Lyon: So instead of reinvesting the, the financial wizards, uh, both my, my CFO and his team really looked at our balance sheet and said, okay, we’re gonna aggressively pay down some of our borrowings. And in conjunction with that. We got rid of some of our, our high rate borrowings that we were using to, to fund some of our lending activity and our deposit gatherings started to renew.

[00:16:45] Devon Lyon: So the six month specials kicked back at a lower rate when they came due in late 24, early 25. So we’ve retained in the high eighties, low nineties, the majority of the dollars that came in when we were running specials. So it’s about. Lessening the, the volatility of rollover and having to run special after special when we’ve been able to reduce our need for our borrowings by taking some of the longer term investments, which were, uh, great, great returns at the time in a low rate environment, but now would look, you know, almost negligible.

[00:17:26] Devon Lyon: Uh, in actuality and taking that money and paying off the borrowing so we can reinvest in some other things.

[00:17:34] Vince Passione: So let’s move from another d from deposits to data, right? As I said, I was watching your, your senior broadcast interview. Um, I’m a computer scientist by training. You said the word, Hey, I need a data dictionary, and it’s the first time I’ve heard a CE over credit union talk about data dictionaries.

[00:17:50] Vince Passione: And then you had this quote, you said, data isn’t about dashboards, it’s about accountability. So. What do you mean by that? And then tell us about your journey with, with data at, at central One.

[00:18:01] Devon Lyon: So what I mean by data is accountability. If you use data and it is good data, that means that decisions you’re going to make.

[00:18:15] Devon Lyon: Are informed decisions. So what you’re, what you’re saying to your board, what you’re saying to your membership, what you’re doing strategically is built on a greater foundation of certainty, and then it’s about executing on, on where you’re using the data and what you’re doing for your vision. That’s what I mean by accountability.

[00:18:39] Devon Lyon: My data journey started, funny enough, I went to CU Lytics. I think 2018 or 19 was the first year I went there as an attendee, and I did not have a lot of of data analytics experience at that point in time in my career. I was, uh, a VP of, of strategic research and insights for a credit union in need of Massachusetts.

[00:19:06] Devon Lyon: In my previous roles, compliance wise, I would use complaint data to, to kind of make some, some decisions about where do we need to get an audit or where do we need to tighten up certain things. So I had experience with using, with data when I went to CU U Lytics and saw all of the things other institutions and vendors were using with data.

[00:19:26] Devon Lyon: I’m like, this is where, this isn’t just, you know, the, the great saying. Data is the new oil. It’s like no data’s the, the foundation that you just need to build your organization on. So within Central one, we’ve been working with Anne Leg and, and her organization Thrive to do a number of data sprints. Our new CIO is in the process of vetting and getting our data lake, uh, set up, which should launch, uh, by the end of the year.

[00:20:00] Devon Lyon: And then in 2026 and beyond, it will be CRM data visualization. The move towards personification and working to continue to strategize the use of data in every single organizational department that we have, because I, I firmly believe that good risk management principles in being a good partner to our communities requires us to leverage data to make the best decisions.

[00:20:36] Devon Lyon: Because at the end of the day, we’re using our, our members’ capital to invest in the communities we

[00:20:42] Vince Passione: serve. So that’s great. So, so you clean the data, you normalize the data, and now you got great, now you got the ability to do analytics. Now you’re gonna drive the business. We’re at ai, now we have to talk about ai.

[00:20:54] Vince Passione: Okay, so is is, is it predictive tools, underwriting? Is it marketing? Is it personalization? What, where do, where are you gonna start? I’m sure it’s all the above, but, but what’s the, what’s the one that you say when I finally get there? The, the, the, the shiny object. The first one is the, the very first use case of

[00:21:12] Devon Lyon: AI at Central one will be with underwriting.

[00:21:16] Devon Lyon: Um, and that’s simply because there are so many good vendors that can bring in an AI underwriting engine that uses so many different additional pieces of data than just your, your standard scoring models and your LOS. Sure. And that to me drives us to saying yes more often, and, and that’s an immediate benefit.

[00:21:42] Devon Lyon: The membership will see.

[00:21:44] Vince Passione: That’s great. Well, I think I know what you’re gonna answer with my final question. What are you personally most excited about heading into 2026? Personally

[00:21:54] Devon Lyon: excited about for 2026? I look forward to us getting beyond the first steps in our data journey because to me. In talking about it and strategizing it and visualizing it for a period of two years across strategic planning sessions, when we start to see the, the results of, of the data lake, the visualization, the use of AI in certain sectors, that to me is, is what excites me most.

[00:22:30] Vince Passione: Yeah. And your position. Well they really are based on this story. And look, direct lending what you’ve done there is, is makes an awful lot of sense. And it shows in your performance, you know, deposits the same. Um, and then, you know, I look at the data story, I think it is an important one. And it’s, it, it’s paying dividends.

[00:22:48] Vince Passione: I’m sure it’s gonna pay dividends in the future. So thank you. It was a, it was a great conversation. Devin, thank you so much for joining us. My pleasure. Thank you for having me. Thanks to all listeners. If you enjoyed this episode, please make sure you subscribe so you can hear future episodes, and I’ll see you back here in our next 22 minutes in lending.

[00:23:04] Vince Passione: Devin, thanks again. Pleasure.

[00:23:07] Narrator: Thank you for listening to the 22 minutes in Lending podcast. We hope you enjoyed today’s episode. You’ll find links to any resources mentioned in the show notes. If you’re enjoying our show, be sure to subscribe and leave us a five star review