NAFCU Journal July August 2021

18 THE NAFCU JOURNAL July–August 2021 What do these economic trends and indicators mean for credit union leaders? Parrish: “Over the past six months, the jury was still out on whether industry asset quality would take a turn for the worse once the effect of stimulus payouts wore off and loan extensions started to expire. It appears at this point that improvements in employment and addi- tional stimulus payments are helping to keep delinquency and loan losses in check. These trends come as welcome news, particularly while net worth ratios keep taking a ‘whoopin’ from the truckloads of deposits credit unions have experienced. The anticipated red hot economy should be good news for credit unions. An increase in demand for consumer credit will generally follow increased economic activity. Also, rising rates, as long as the trend isn’t too steep or too sudden, will help mend some of the net interest income damage from over the past year. Asset yields should increase, and with the build-up of liquidity that most credit unions have experienced recently, some lag opportunities in liability pricing will be available. Also, it will be interesting to see how the mortgage market plays out over the next few years if rates continue to rise, yet demand remains strong. As such, credit unions will have to pay close attention to pricing over the coming periods.” Eisel: “Last year presented credit union leaders with an unprecedented envi- ronment. It started with many credit unions closing branches, which pushed members to utilize the credit union’s electronic platforms—many for the first time. As the economy remained mostly shutdown, credit unions increased their allowance for loan loss, opening up skip-a-pay and forbearance programs, or increasing the availability and flexibility of these programs they already had in place to assist their members in need. When it became clear that the economy would not re-open quickly, credit unions saw slower loan growth as a longer-term concern and were forced to evaluate ways to invest excess liquidity into the markets. Unfortunately, demand for bonds has been at record levels in a market where interest rates were once again back to record low levels, similar to what we experienced during the financial crisis. After two more stimulus packages were introduced in December and then March 2021, deposit growth reached record levels for many credit unions, putting more pressure on the investment portfolio. On the loan side, credit unions are still faced with anemic loan demand with regard to autos and credit cards, but mortgage lending has been at an all-time high for many. Record low interest rates and new work-from-home (WFH) plans by many companies has created unprec- edented housing demand in many parts of the country. This has also created pres- sure on housing costs, with lumber prices at record highs and contractors diffi- cult to schedule. Even so, credit union members continue to see value in the housing market so demand is still high and is expected to remain so as rates are projected to stay low well into 2022. For credit unions, it is a balancing act to determine how much of this excess liquidity to put to work in the investment portfolio while trying to determine how sticky these funds might be moving forward. While loan demand may pick up in other parts of the balance sheet, members are using their excess funds to pay down debt and increase their rainy- day funds. Data shows delinquencies and charge-offs are trending lower as folks are repairing their personal balance sheet. While better loan performance is welcome for the credit union, projecting future loan growth will be difficult. On the expense side, many credit unions refocused their efforts and budgets on enhancing the electronic delivery of their financial services as many of their mem- bers were forced to utilize these avenues during the lockdown in 2020. Credit unions are investing in more cybersecu- rity given more transactions are moving this way, and training will become more virtual. Credit unions are reviewing their travel and educational budgets in 2022 and realizing they can still find incredible training for their staff in a virtual way, providing more opportunities to more employees at a fraction of the cost and limiting employee downtime.” Data shows delinquencies and charge-offs are trending lower as folks are repairing their personal balance sheet. While better loan performance is welcome for the credit union, projecting future loan growth will be difficult. FRED EISEL, CHIEF INVESTMENT OFFICER FOR VIZO FINANCIAL CORPORATE CREDIT UNION