20 THE NAFCU JOURNAL January–February 2022 people to suburbs during the pandemic and work-at-home situations settles,” he says. The combination of businesses relocating to other states as well as individuals relocating to suburbs or to lower-cost states created unusual price increases in many areas, he points out. As housing forbearance programs come to an end, Parrish does not see much impact for his credit union. “Our portfolio has continued to bump along without much impact, and it looks like that will be the case, for the most part, in other regions of the country,” he said. “As such, we’re not expecting any impactful amount of foreclosure activity.” There is likely to be a noticeable difference for auto loan volume. “Auto loans are an important part of the overall loan portfolio for credit unions and there is not a lot of good news about future new auto purchases,” says Long. “Domestic manufacturing is down 30%, there’s a shortage of semiconductors used in auto systems, and supply chain issues are slowing delivery of materials.” As new cars have become scarcer, the sale of used cars has doubled, which is some good news, he adds. “This will resolve but we won’t see any light at the end of the tunnel until later in 2022.” “We’ve seen a significant impact in our area—it’s kind of eerie passing by the various auto malls here and seeing dealerships with almost no inventory,” said Parrish. “Our auto loan volume is off by about 25%, and competition for what deals are out there has been pretty stiff.” One thing to keep in mind: new and used auto pricing has reached record levels, as new cars are selling at sticker and some dealers are now adding on an additional fee, said Eisel. “Cars are an asset that depreciates in value, so as the auto sector corrects itself into next year, the valuation of these autos will most likely trend back to mean, and it may be quick.” This is something to be aware of as credit unions look at LTV percentages in their loan portfolio, he warned. Interest Rates “Federal Reserve officials are split down the middle on predictions for the Fed to raise interest rates, with some saying it will happen in 2022 and others saying not until 2023,” says Long. “Inflation should remain somewhat elevated, but it will still take some time to get back to full employment. I believe we will probably see a rate hike in the fourth quarter of 2022.” “If the Fed does increase rates slightly next year, and right now, the futures market is pricing in 2.5 rate increases, this should benefit credit unions,” said Eisel. Spreads have been incredibly tight throughout this pandemic, so an increase in overnight rates will provide much needed room for margin expansion as cash and other short-term assets would reprice higher. “Most likely, credit union deposit accounts would lag this increase, providing some increased margins, and any investments or loans that are variable rate based on Prime or another index will adjust, benefitting the credit union.” Credit unions do need to model various rate scenarios and yield curve shapes to determine the impact to their balance sheet in the years ahead to evaluate the effect of higher yield loans or funding cost increases, he suggested. Recession Not Likely “I am not in the camp that believes we are heading to a recession, even though growth will slow in early 2022,” said Eisel. “The Bloomberg forecast right now is for economic growth to be around 4% in 2022. In 2023, economic growth is expected to head closer to 2.4%.” While this is slower, it’s also a more normal level of growth, he pointed out. “Economic growth of around 2–3% is normal, in fact, it averaged 2.2% from 2010 to the end of 2019, right before the pandemic year.” Long agreed that there is a low likelihood for a recession and that the release of pent-up demand and return to normalcy after the pandemic will spur a stronger economy. “The end of 2021 we were still on a bit of a hold on the economy but 2022 will see more people returning to work, and some of the supply issues will sort themselves out,” he says. “We will see a big difference between the first and second halves of 2022, with us seeing a more recognizable economy in the second half.” Looking Forward When asked to give advice for credit union leaders as 2022 begins, Parrish said, “Capital, liquidity and task optimization will be vital to operating in an increasingly uncertain environment. If the economy does head south, capital will help us absorb whatever shocks might come our way. If rates take off on us, liquidity will certainly be useful on that ride up. And as technology remains front and center in terms of meeting member service expectations, we’ll need to focus on redirecting any resulting available resources toward more productive endeavors and better service.” Our portfolio has continued to bump along without much impact, and it looks like that will be the case, for the most part, in other regions of the country,” he said. “As such, we’re not expecting any impactful amount of foreclosure activity. PAUL PARRISH, CEO OF ONE NEVADA CREDIT UNION
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