July–August 2023 ALSO INSIDE Economic Outlook NAFCU Annual Report 10 YEARS OF UNWAVERING LEADERSHIP IN WASHINGTON
17 12 FEATURES 12 10 Years of Unwavering Leadership in Washington A look at the credit union landscape as Dan Berger celebrates milestone as NAFCU’s president and CEO 17 Enjoy the Ride: No Consensus on Recession Credit unions will see challenges and opportunities in 2023 19 2022 Annual Report COLUMNS 5 Conferences 6 From the Chair 8 Washington and Industry Briefs 10 The Bottom Line 32 Inside NAFCU Services 34 Management Insight 36 Executive Spotlight 38 Leadership Download 40 Compliance Central 42 From the President’s Desk 19 July–August 2023 • Volume 48, Number 4 The NAFCU Journal (ISSN 1043-7789) is published bimonthly every other month. July–Aug 2023, Volume 48, Number 4. Published by the National Association of Federally-Insured Credit Unions, 3138 10th Street N., Arlington, VA 22201-2149. Periodicals Postage Paid at Arlington, VA, and at additional mailing offices. POSTMASTER: Send address changes to The NAFCU Journal, NAFCU, 3138 10th Street N., Arlington, VA 22201-2149. The opinions and ideas appearing in this magazine are not necessarily representative of policies of NAFCU. Manuscripts and advertisements are welcome, although NAFCU reserves the right to edit manuscripts and refuse advertisements. Contact publisher for advertising information and rates. Appearance of an advertisement does not imply endorsement or guarantee of the advertiser’s claims. For subscription or advertising information, call 800-336-4644 or 703-522-4770. Email: [email protected]; website: www.nafcu.org. ©2023 National Association of Federally-Insured Credit Unions, all rights reserved. 3 THE NAFCU JOURNAL July–August 2023
CONFERENCES 2023 Calendar of Events Summer BSA School Aug. 15–17, in-person in Louisville, KY Risk Management Seminar Aug. 15–17, in-person in Louisville, KY Congressional Caucus Sept. 10–13, in-person in Washington, DC Large CU Summit Sept. 11–12, in-person in Washington, DC Fall CFO Summit Sept. 19–21, in-person in Las Vegas, NV Regulatory Compliance & BSA Seminar Sept. 26–28, in-person in Savannah, GA or Virtual Management and Leadership Institute Oct. 23–27, in-person in Annapolis, MD Lending Conference Nov. 7–9, in-person in New Orleans, LA For more information about NAFCU’s conferences, go to www.nafcu.org/conferences. Looking for more educational opportunities? NAFCU’s Online Training Center has been redesigned to give credit union professionals easier access to the association’s training programs and library of webinars. For information and the current schedule of upcoming webinars, visit www.nafcu.org/ onlinetraining. Topics and dates subject to change. DIRECTORS Gary A. Grinnell, Chair Corning FCU (NY) Brian T. Schools, Vice Chair Chartway FCU (VA) Karen Harbin, Treasurer Commonwealth CU (KY) Lonnie Nicholson, Secretary EECU (TX) Whitney Anderson Elements Financial (IN) Melanie Kennedy Southwest Financial FCU (TX) Frank Mancini Connex CU (CT) Keith Sultemeier Kinecta FCU (CA) Karen Rosales Arlington Community FCU (VA) Stephanie Sherrodd Sandia Laboratory FCU (NM) Eli Vazquez Bank-Fund Staff FCU (DC) EXECUTIVE STAFF B. Dan Berger President/CEO Anthony Demangone Executive Vice President/COO Meghan Small Vice President of Communications and Media Relations Greg Mesack Senior Vice President of Government Affairs Randy Salser President of NAFCU Services Corporation MAGAZINE STAFF Haley Schmitz Editor LLM Publications Editorial Services and Design ADVERTISING [email protected] www.nafcu.org/advertise 5 THE NAFCU JOURNAL July–August 2023
NAFCU is here to make sure you and your institution can do that effectively. Rest assured that NAFCU’s board is here for you. We will provide strong guidance to not only leadership, but all employees at the association on the challenges facing our industry and the policy priorities that will allow us to thrive. We will encourage smart investments in resources that will support you, and we will play an active role in advocating on behalf of the industry. We are proud to serve and remain committed to strengthening credit unions. Gary Grinnell is president and CEO of Corning Credit Union in Corning, NY. FROM THE CHAIR STRENGTHENING THE CREDIT UNION INDUSTRY THROUGH LEADERSHIP By Gary Grinnell, NAFCU Board Chair Credit unions’ board of directors play a vital role in the success of the institution. Whether you’re a leader of a credit union and work directly with your organization’s board—or you are a credit union member volunteering on the board of a credit union yourself—understanding your responsibilities is key. I was honored to take on the role of chairman of the NAFCU Board of Directors this time last year. It is a privilege to work with NAFCU to advance the interests of an industry that puts members’ needs above all else. We recently held elections for open seats, and I was thrilled to welcome a newcomer to the Board and welcome back those who continue to dedicate their time serving NAFCU and the credit union industry. It reminded me about the important role boards of directors play—in all organizations. For NAFCU, our main objective is to guide the association as it builds strategic priorities for advocacy efforts, compliance assistance, and education opportunities. We also provide financial oversight and accountability to ensure members’ dues are spent diligently and for purposes that support the association’s mission. I have found that my leadership strategy as chairman of the board often shares striking similarities to my strategy as CEO at Corning Federal Credit Union. There, my role is to protect our culture and values, execute our strategy and mission, and ensure long-term success for our members and team. Similarly, the role of the NAFCU board is to support staff and keep the organization focused on its mission. I’ve found that, as chair, my main role often comes down to facilitating an environment where the leadership and great team at NAFCU can execute their jobs effectively. When they are empowered to focus on what they do best—providing extreme member service, advocacy, compliance assistance, and education opportunities—we, as members of NAFCU, reap the rewards of their efforts. When we come into a leadership position or have the opportunity to volunteer our expertise, it’s the culmination of a myriad of experiences, skills, and knowledge. It is humbling to be recognized for years of hard work and dedication. It also comes with high expectations and responsibilities. For the NAFCU Board of Directors, it’s important that we recognize this and take time to reflect on the impact we can have on the entire credit union industry. Across the industry, our institutions are unique and serve specific communities that have varying needs. But, we share the same mission of providing safe, affordable financial products and services to those who need them most. 6 THE NAFCU JOURNAL July–August 2023
WASHINGTON AND INDUSTRY BRIEFS The Federal Reserve has been steadily raising interest rates in an effort to cool inflation, and those increases have compressed credit unions’ net interest margins, particularly on credit cards, lines of credit and other unsecured loans to members. At its January 2023 meeting, the NCUA Board extended the current 18% interest rate ceiling for 18 months and instructed the NCUA Office of General Counsel (OGC) to determine whether a floating interest rate ceiling is permissible under the Federal Credit Union (FCU) Act. NAFCU has consistently advocated for the NCUA to adopt a floating interest rate ceiling. While not all credit unions offer credit cards, there has been an uptick in requests from members as consumer credit usage increases. The 18% interest rate ceiling applies only to FCUs. Banks and fintechs, which are not subject to NCUA regulation, typically offer credit cards, lines of credit and other unsecured loans with average rates well over 18%, often approaching 30%. The concern about the interest rate ceiling is two-fold. As a credit union makes a risk-based judgment before issuing a credit card to a member, is 18% enough to cover repayment risks as well as the credit union’s rising cost of borrowing money? Also, in terms of expanding access to credit and doing the right thing for members, wouldn’t members that otherwise have to turn to comparatively expensive bank products be better off if their credit unions could offer a fairer rate? NCUA DISCUSSES OPTIONS FOR INTEREST RATE CEILING By Dale Baker, NAFCU Regulatory Affairs Counsel At the NCUA Board’s April meeting, the NCUA OGC shared that it had determined, based on its review of the FCU Act, its legislative history, relevant case law and other federal agencies’ actions, that it is reasonable to interpret the FCU Act to permit a floating interest rate ceiling if the required agency coordination and economic conditions are met. NCUA staff also shared how a return to the FCU Act’s 15% interest rate ceiling would affect credit unions. Staff research showed that 33 FCUs have a concentration of loans above 15% exceeding 10% of assets. Of those 33 credit unions, 25 have less than $10 million in assets. The entire NCUA Board agreed that allowing the interest rate ceiling to revert to 15% would create hardships for a significant number of credit unions, but only Board Member Rodney Hood supported adopting a floating interest rate ceiling or, in the interim, raising the interest rate ceiling to 21%. Vice Chairman Kyle Hauptman pointed out that while a floating interest rate ceiling generally makes sense, it would place significant stress on credit unions in a future zero or near-zero interest rate environment when it could drop below the current 18% interest rate ceiling. NAFCU was disappointed by the NCUA Board’s reluctance to increase the interest rate ceiling as the association has supported increasing the interest rate ceiling to 21% given these unprecedented economic times. Recognizing the interest rate pressures facing many credit unions, Chairman Todd Harper suggested that credit unions look for ways to reduce credit product costs, such as by offering more traditional no- reward credit card programs, in order to serve more members at the same rate. For now, the interest rate ceiling will likely remain at 18% until at least September 2024. Although the traditional extension is for 18 months, the NCUA Board can meet, discuss and adjust the interest rate ceiling at any time, provided the FCU Act’s required agency coordination and economic conditions are met. The NCUA OGC’s research and findings provide a good foundation for future discussion, but the NCUA Board made clear that any future adoption of a floating interest rate ceiling would be a lengthy, complex process because many of the NCUA’s related regulations would need to be reviewed to ensure unintended consequences are avoided. “In terms of expanding access to credit and doing the right thing for members, wouldn’t members that otherwise have to turn to comparatively expensive bank products be better off if their credit unions could offer a fairer rate?” 8 THE NAFCU JOURNAL July–August 2023
A NEW ERA FOR ENTREPRENEURSHIP By Curt Long, NAFCU Chief Economist and Vice President of Research THE BOTTOM LINE Forecasting the economy is always a challenge. Few are able to correctly predict the timing of recessions with any accuracy, and those who do are often guilty of predicting numerous recessions that never materialize. At the outset of 2023, 70% of economists anticipated a recession during the calendar year,1 and many prominent forecasters—including the members of the Federal Reserve’s Federal Open Market Committee (FOMC)—likewise predicted a significant rise in unemployment in 2023.2 The combination of the highest inflation in 40 years, the fastest monetary tightening cycle in that time, and a crash in the housing market appear to be all the ingredients needed for a recession (you can find more on my take in the Economic Outlook feature article on page 17 in this magazine). While the economy still faces significant headwinds and a recession is never out of the question, it is incumbent on forecasters everywhere to ask why the economy has remained as resilient as it has for as long as it has, and why the labor market remains so tight. One emerging possibility that could help explain the buoyant economy and a persistently hot labor market is a burst in entrepreneurship. The accompanying chart shows a complete break in the measured level of new business applications. Following a brief dip at the onset of the pandemic, applications saw explosive growth and have since settled at an elevated level. The most notable aspect of the fiscal response to COVID-19 directly related to small businesses, the Paycheck Protection Program, only benefited firms that existed pre-pandemic. In theory, this should discourage startup activity. However, stimulus payments may also have provided entrepreneurs, particularly sole proprietors, with a source of seed capital. More importantly, recent structural changes in the economy, like the rise of remote work and an increase in online retail, create fertile ground for startups. One implication in the rise of new business applications is a more dynamic economy. Not surprisingly, research finds a tight correlation between business applications and new business establishments. More interestingly, higher applications are also associated with greater business deaths.3 This is creative destruction in action, with more nimble Monthly New Business Applications 600,000 500,000 400,000 300,000 200,000 100,000 0 2005 2010 2015 2020 Source: U.S. Census Bureau Business Formation Statistics 10 THE NAFCU JOURNAL July–August 2023
References 1. Golle, Vince, and Kyungjin Yoo. “Economists Place 70% Chance for US Recession in 2023.” Bloomberg, 20 Dec. 2022, https://www.bloomberg. com/news/articles/2022-12-20/economists-place-70-chance-for-us-recession-in-2023. 2. See FOMC Summary of Economic Projections, 14 Dec. 2022, https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20221214.pdf. 3. Haltiwanger, John C., Entrepreneurship During the Covid-19 Pandemic: Evidence from the Business Formation Statistics (June 2021). NBER Working Paper No. w28912, Available at SSRN: https://ssrn.com/abstract=3866345. 4. Ibid. 5. Asturia, Jose, et al., Business Applications as Economic Indicators (May 2021). U.S. Census Bureau Center for Economic Studies Working Paper No. CES 21-09, Available at: https://www.census.gov/library/working-papers/2021/adrm/CES-WP-21-09.html. challenger firms replacing less productive incumbents. A similar pattern plays out in the labor market. A one standard deviation rise in business applications is associated with “substantial and significant increases in hires and separations rates over the next 16 quarters.”4 Another recent study looks at the relationship between business startups and overall economic activity.5 Compared with other leading economic indicators, applications for businesses that are likely employers “are particularly useful as indicators of aggregate economic activity.” The authors note that the economic activity that follows could be a direct consequence of startup activity, or it could be that entrepreneurs are able to anticipate future economic conditions and change their behavior accordingly. If the latter interpretation is correct, another implication is that financial press would be far better served asking new business owners about the outlook for the economy, rather than economists.. “Following a brief dip at the onset of the pandemic, applications saw explosive growth and have since settled at an elevated level. The most notable aspect of the fiscal response to COVID-19 directly related to small businesses, the Paycheck Protection Program, only benefited firms that existed pre-pandemic. In theory, this should discourage startup activity. However, stimulus payments may also have provided entrepreneurs, particularly sole proprietors, with a source of seed capital.” 11 THE NAFCU JOURNAL July–August 2023
A look at the credit union landscape as Dan Berger celebrates milestone as NAFCU’s president and CEO 10 YEARS OF UNWAVERING LEADERSHIP IN WASHINGTON THE NAFCU JOURNAL July–August 2023 12
Not many people can say they’ve led an organization through one of the worst crises in modern history, let alone three. Dan Berger can. Berger joined NAFCU in 2006 as head of the association’s government affairs department. Shortly after, the world experienced the most severe economic crisis since the Great Depression. Brought on by overzealous, risky mortgage lending practices, the 2008 financial crisis drastically altered the financial services landscape and people’s perceptions of banking institutions. Fast-forward to 2020 and a global pandemic. The world was brought to a halt and life as we knew it completely changed in just one day. As people were forced to stay home, businesses across all industries faced the unprecedented challenge of operating in a socially distanced, remote environment. Just as life was beginning to return to normal in 2023, the U.S. financial system faced another crisis: the three largest bank failures since 2008. Initial reviews into what went wrong at the large, regional banks brought flashbacks to the housing crisis—poor bank management and risky decision making, spurred by profit-seeking executives and unmitigated concerns from regulators. Doing Right by Credit Unions Although the policymaking pendulum tends to swing wildly in response to crises, NAFCU and the credit union industry have unwavering leadership and a strong advocate in Berger to ensure regulations are not overly burdensome or restrictive of growth. And when bad policies are passed, Berger isn’t afraid of NAFCU taking a hard stance—the association has earned its reputation of being credit unions’ voice in Washington as it listens to members’ needs and builds its strategy based on feedback and data. In response to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, NAFCU was the only credit union trade association to advocate against the formation of the Consumer Protection Financial Bureau (CFPB) and its authority over credit unions. Berger reminded lawmakers and the bureau of this in 2020— on the Dodd-Frank Act’s own 10-year anniversary: “Today marks ten years since the Dodd Frank Act was signed into law and nine since the CFPB opened its doors. With them, we are reminded of the egregious practices of Wall Street that caused the 2008 financial crisis,” Berger said. “We are also reminded, however, that small community financial institutions were incorrectly looped into the 2010 law despite not being responsible for bringing the economy to its knees. Credit unions have had to do more with much less resources complying with regulations created to reign in big banks. “It’s time the credit union industry finally be exempt from the CFPB’s authority, for the Bureau to be led by a bipartisan commission, and for policymakers to work towards reforming rules that will create an environment where credit unions can better strengthen their members and communities.” Today, Berger is urging Congress to hold the bureau accountable and holding strong in his resolve to end their “War on Main Street” as it pursues misguided policies that will hurt consumers and small businesses the most—the very people and entities the CFPB was created to protect. When businesses were struggling to keep their doors open amid the pandemic and access to credit tightened, NAFCU was instrumental in ensuring credit unions were included as lenders in the critically important Paycheck Protection Program (PPP). As consumers’ trust in banks is once again tested, NAFCU and Berger stand ready to tout the credit union difference. Berger championed the credit union difference in the wake of recent bank failures and the safety and soundness of the industry. “For years, Americans have dealt with the consequences of risky bank behavior. The contrast in decision making was even clearer after the recent bank failures,” “For years, Americans have dealt with the consequences of risky bank behavior. The contrast in decision making was even clearer after the recent bank failures. Banks are comfortable to choose the risky path, chasing yields and losing consumers’ money, while credit unions are safe, secure, and reliable.” Berger testifying on behalf of credit unions before the House Small Business Committee in 2015. 13 THE NAFCU JOURNAL July–August 2023
Berger wrote in an April op-ed. “Banks are comfortable to choose the risky path, chasing yields and losing consumers’ money, while credit unions are safe, secure, and reliable. Only about 50% of bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) compared to roughly 90% of credit union deposits backed by the National Credit Union Administration (NCUA). No one has ever lost a penny of insured share deposits in the credit union system.” Advocacy: The Core of NAFCU— and Berger When asked what he wanted to be when he grew up, Berger says he knew in middle school he wanted to be a lobbyist. He got his start in politics and policy by volunteering with local campaigns, and after earning degrees from Florida State University and Harvard, came to Washington to serve as chief of staff for a member of Congress. He had other roles within government relations and financial services before coming to NAFCU, but it’s also notable that the mission and service of credit unions had been instilled in Berger far before he entered the industry. To him, it’s personal. And it always has been. Credit unions are where his parents banked, and his local institution gave him his first auto loan. When it comes to advocacy, Berger believes that staying true to NAFCU’s mission is paramount. And this strong belief was fostered during his time leading the NAFCU’s government affairs team. The association is a non-partisan organization, with a team of lobbyists who build relationships on both sides of the aisle. On the regulatory side, the association is tough when the situation calls for it, while always remaining willing to collaborate and share analyses and recommendations. This kind of constructive relationship with regulators has been key to various industry wins throughout Berger’s tenure. As a direct membership association, NAFCU’s success is bolstered by feedback from member credit unions. Using insights from members through various channels, coupled with guidance from the NAFCU Board of Directors, the association tackles a robust list of priorities each year. When stepping into his role as president and CEO, Berger grabbed the wheel seamlessly and saw a clear path ahead. He narrowed down what was core to NAFCU’s mission and, moving forward, all items under the top three buckets of advocacy, compliance, and education were prioritized. While this focus was ever-present, Berger remained nimble and ready to adapt to the credit union’s ever-evolving industry. Shortly after taking the role, Berger spearheaded the decision to open NAFCU’s membership to federally-insured, state-chartered credit unions, marking a historic move to advocate on behalf of even more credit unions and strengthening the association’s impact on federal issues. As credit unions strengthened and grew under Berger’s leadership, so did NAFCU. In May 2023, NAFCU membership represented 63% of all credit union assets, a nearly 20% increase since Berger took the helm. But he is not shy to shift the credit on NAFCU’s Staff, which he deems the organization’s best asset. Servant Leadership Berger often explains his approach to management is one of servant leadership. NAFCU’s success makes clear that by taking care of employees and the team, they in turn take care of NAFCU members. The association’s employees are trained to be mission-driven with a laser focus on serving members. Having an extreme member service mindset allows NAFCU staff to not only remain accountable, but to be a part of something bigger than themselves. Consistently communicating the “Why” of NAFCU and actually living it out is something Berger takes very seriously. He also understands you can’t expect that of your employees without a positive work environment and strong organizational culture. When the COVID-19 pandemic hit, NAFCU quickly shifted from an in-office routine to a fully remote working environment like most organizations. Without daily in-person connections, Berger made it a priority for employees to remain connected and engaged. The creation of NAFCU’s Culture Committee is just one example of this effort. The Culture Committee organizes unique opportunities for both virtual and in-person gatherings, shares a monthly newsletter highlighting employee insights, and often finds ways to live out the NAFCU “Why” by coordinating employee volunteer work in the community. In addition to being member-driven, NAFCU’s mission is one of passion and excellence, all of which Berger prioritizes in every decision he makes. He remains focused on the strength and growth of the organizations’ members and passionate about his team and the industry and will continue to strive for excellence as he leads the association forward. When he’s not advocating for the industry, Berger enjoys fishing with his daughter, Shelby. 14 THE NAFCU JOURNAL July–August 2023
Enjoy the Ride NO CONSENSUS ON RECESSION “Rollercoaster” has been a common word used to describe the U.S. economy over the past few years. The steep drops and breathtaking rises as the country faced the challenges presented by the pandemic had economists predicting a variety of outcomes—with every one of them admitting that there were always unknowns that could affect the economy. Today, inflation is at a level that has not been seen since the late 1980s, but current consumer spending suggests that people are still willing to splurge on some items.1 “Overall, I’m positive about the economy in the latter half of 2023 and into 2024,” said Curt Long, vice president of research and chief economist for NAFCU. “We’ve encountered some headwinds as the Federal Reserve Board (Fed) has increased interest rates, which impacted the housing and banking industries, but we saw consumers power through and continue purchasing homes and automobiles.” While there are positives in all sectors, there are potentially signs that consumers may be moderating some behaviors, said Long. Retailers are seeing lower provide policymakers a tool to use in case of a downturn in the economy and potential recession, said Long. “If both inflation and growth decline, the Fed can choose to cut rates.” Elliot F. Eisenberg, Ph.D., president and chief economist at GraphsandLaughs, has a different opinion about the economy. “I have a strong feeling that we will see a recession,” said Eisenberg. “With some banks struggling, credit more difficult to obtain for some consumers and interest rates that may go higher, there is too much stress not to have a recession.” It is important to note that no one should panic about a recession this year, said Eisenberg. “Recession is part of the process, and the U.S. economy is in recession about 15% of the time,” he said. Since 1950, there have been 10 to 15 recessions, but the recessions most people remember were the 1974–75 recession triggered by the Arab oil embargo, the early 1980s recession that was triggered by a tight monetary policy implemented to reduce inflation and the 2008–09 recession related to the housing bust. “Fortunately, this will not be one of the recessions that will be remembered years from now,” he said. profits, and McDonald’s has reported signs of a slowdown in sales, which suggests that consumers are becoming more cautious, he said. “Retail and restaurant sales can serve as a bellwether for other sectors of the economy.” Long believes that a recession is unlikely with unemployment remaining at around 3.5%. “If unemployment were to rise, we would see significant problems and consumers would have to reduce their spending,” he said. “Of course, there are a lot of risks, such as the federal debt ceiling or banking concerns, that could create problems that are difficult to anticipate.” While the interest rate increases by the Fed have increased borrowing costs for consumers, the increased rates also Credit unions will see challenges and opportunities in 2023 By Sheryl S. Jackson 17 THE NAFCU JOURNAL July–August 2023
Looking Ahead at Specific Sectors “In the automobile sector, people are waiting for the new car supply to recover but automakers are still behind on their production schedules as a result of parts supply shortages,” Long said. “This has meant a strong market for used cars, a segment in which credit unions have always performed well.” In the fourth quarter of 2022, credit unions reported a 20% increase year-over-year for both new and used auto loans.2 “Credit unions should be cautious when making car loans,” warned Eisenberg. “As more new cars come into the market, the residual value of the used cars will come down. Don’t be too generous with used car loans and know that the value will drop as supply increases.” Mortgage rates are higher than they have been in the past decade, but pent-up demand means that credit unions are seeing an upward trend in homebuyers seeking mortgages, said Long. “In the fourth quarter of 2022, credit unions reported a 16.6% growth over the previous year in first-lien mortgages for non-commercial property and a 39.3% increase year-over-year for second mortgages.”3 While new home construction starts have slowed, the mortgage market should offer opportunities for credit unions, he added. Headlines announcing the failure of multiple regional banks may have consumers concerned about the financial industry, but Long pointed out that credit unions are not as susceptible to the situations that led to those failures. “The vast majority of credit union deposits are from individuals or small businesses, with balances under the federal deposit insurance cap of $250,000,” he said. “Only around one-half of bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC). Meanwhile, about 90% of credit union deposits are insured by the National Credit Union Administration (NCUA), which means that the type of runs we saw on some of the failed banks that we saw are unlikely to happen at a credit union.” “Credit unions also have several advantages over banks,” said Eisenberg. In addition to deposits that are mostly covered by the National Credit Union Share Insurance Fund, credit unions have a loyal base of members. Credit unions have built relationships—often over several generations—which results in the likelihood that the credit union is the first choice for loans and other products and services. “However, credit unions shouldn’t count on the relationship alone, because all consumers are likely to go elsewhere if rates are not competitive,” he added. Opportunities for the Future “In the second half of 2023, credit union lending opportunities will increase as banks seek greater liquidity and back off on small business lending,” said Long. The same holds true for mortgages and auto loans, he said. “There was a 20% increase References: 1. Adams C, Alldredge K, Pitakos A. A monthly update on the state of the US consumer: April 2023. McKinsey & Company. April 25, 2023. www. mckinsey.com/industries/consumer-packaged-goods/our-insights/a-monthly-update-on-the-state-of-the-us-consumer-april-2023. 2. Financial Trends in Federally Insured Credit Unions. National Credit Union Administration. December 2022. 3. Ibid. in auto lending for credit unions over the past year. However, for those credit unions that grew more modestly last year, there are plenty of opportunities to grow loans this year,” he said. “This is a good time to look for opportunities and create a strategy to continue lending as banks pull back.” While evaluating opportunities, credit union leaders should be investing in the tools needed to beef up underwriting to provide additional insight as second mortgages, equity lines, small signature loans or other products are offered, recommended Eisenberg. “Investing now positions the organization to offer products when they are needed and minimize the risk to the institution.” “Credit unions also have the opportunity to help staff and members better understand what some of the issues mean to them to avoid overreactions,” said Eisenberg. “It is human nature to expect the very best or the very worst and to go from euphoria to dismay, but the reality is that life is generally not always an extreme. The recession won’t be the worst we’ve seen, and the recovery will not be the greatest in history.” Offering information and education that puts economic issues in the appropriate frame of reference based on past experience, not headlines, will allow people to plan and make decisions, he added. Whichever new services—lending, savings or educational—are offered, Eisenberg suggested that credit unions play to their strengths: “Stick to your knitting.” “ Recession is part of the process, and the U.S. economy is in recession about 15% of the time. Fortunately, this will not be one of the recessions that will be remembered years from now. ” ELLIOT F. EISENBERG‚ PH.D., PRESIDENT & CHIEF ECONOMIST, GRAPHSANDLAUGHS 18 THE NAFCU JOURNAL July–August 2023
National Association of Federally-Insured Credit Unions ANNUAL REPORT 2022
KEITH SULTEMEIER Western Region Director President/CEO, Kinecta FCU ELI VAZQUEZ Director-at-Large CEO, Bank-Fund Staff FCU LONNIE NICHOLSON Secretary, Southern Region Director President/CEO, EECU GARY A. GRINNELL Chair, Eastern Region Director President/CEO, Corning FCU BRIAN T. SCHOOLS Vice Chair, Eastern Region Director President/CEO, Chartway FCU KAREN C. HARBIN Treasurer, Director-At-Large President/CEO, Commonwealth CU MELANIE KENNEDY Southern Region Director President, Southwest Financial FCU JAMES A. KENYON Director-at-Large President/CEO, Whitefish CU KAREN ROSALES Director-at-Large President/CEO, Arlington Community FCU FRANK MANCINI Director-At-Large President/CEO, Connex CU STEPH SHERRODD Western Region Director President/CEO, Sandia Laboratory FCU 2022 NAFCU BOARD OF DIRECTORS 20 THE NAFCU JOURNAL July–August 2023
In 2022, everyday life started to return to normal, but the financial impacts and economic uncertainty stemming from two years of a worldwide pandemic continued to impact the country. However, because of your commitment to your 135 million members, the credit union industry remained steadfast and experienced growth as a result. Throughout the year, our industry stepped up to fill voids in underserved communities and for Americans in need of financial products and services as we recovered from the pandemic. Banks continued their trend of closing branches while our industry opened them. Even in a challenging interest rate environment, credit unions offered affordable auto, mortgage, and business loans to millions of consumers. You pursued smart partnerships and innovative solutions to meet your members’ needs. That’s the credit union difference. That’s why NAFCU fights passionately for you every day and was able to secure several legislative and regulatory wins for the industry in 2022, while providing educational opportunities, events, and increased compliance support to ensure your continued success. Through the guidance of NAFCU’s Board of Directors and direct feedback from NAFCU member credit unions, the association stayed focused on its mission: providing extreme member service and advocating on behalf of the credit union industry. Our advocacy priorities centered on growth, regulatory relief, innovation, a fair market, and protecting consumers’ data. With you bolstering our grassroots advocacy efforts, Congress enacted the Credit Union Governance Modernization Act to protect your institutions and employees. Lawmakers also recognized the consequences of putting more caps on interchange fees and refused to include provisions in end-of-year bills. We successfully defended against banker attacks on the industry’s tax-exempt status and mergers. We continued to build broad bipartisan support for allowing all credit unions to add underserved areas to fields of membership and saw increased investment in Community Development Financial Institutions. In addition, we fought to limit regulatory reporting burdens and secured guidance on innovative partnerships. NAFCU remained agile, efficient, and prudent stewards of member dues. Maintaining a healthy budget allowed us to invest in resources to better serve you. Our research team analyzed the latest economic data to keep you informed of trends that could impact your portfolios or members’ financial health. Our compliance team maintained its responsiveness, answering an average of 25 questions from credit unions each business day. At the end of 2022, NAFCU’s membership represented 63 percent of federally-insured credit union assets, 47 percent of federally-insured state-chartered credit union assets, and 78 percent of federal credit union assets – all increases from the previous year. Such growth is a testament to NAFCU employees’ dedication to the industry and the value NAFCU member credit unions see in the association. We take pride in representing credit unions and your members across the entire country, and we will continue to fight for the industry’s success. NAFCU CHAIR AND PRESIDENT’S REPORT B. Dan Berger | NAFCU President and CEO Gary Grinnell | NAFCU Board Chair 21 THE NAFCU JOURNAL July–August 2023
ACCOMPLISHMENTS NAFCU provides the industry’s leading ACE – advocacy, compliance, and education – as part of our commitment to helping credit unions overcome challenges in order to thrive. The entire staff at NAFCU is dedicated to fighting for effective regulation that supports member operations, and works passionately to ensure policymakers recognize the immense benefits of the credit union industry. Here’s what the award-winning team at NAFCU accomplished in 2022. 2022 22 THE NAFCU JOURNAL July–August 2023
ADVOCACY In 2022, NAFCU remained committed to creating a legislative and regulatory environment that allows credit unions – and their 135 million members – to thrive. NAFCU’s bold advocacy blueprint aimed to create regulatory relief, foster credit union innovation, grow membership, and level the playing field between credit unions, large banks, and underregulated market participants. This strategy secured several key wins for the industry and American consumers. ON CAPITOL HILL Throughout 2022, NAFCU fought back against bankers’ attacks by continuing efforts under the award-winning Big Bank Bullies campaign to highlight the difference between communityfocused credit unions and profit-seeking banks. In addition, NAFCU led efforts against legislative attempts to extend debit interchange routing requirements to credit cards and grant the National Credit Union Administration (NCUA) expanded third-party vendor authority. NAFCU’s award-winning advocacy team called on Congress to provide more funding and sought improved Community Development Financial Institution (CDFI) Fund communication and a better certification process. A NAFCU member credit union witness testified before the Senate Banking Subcommittee on Financial Institutions and Consumer Protection on these issues and more. NAFCU secured the introduction of, and bipartisan support for, multiple pieces of legislation to provide credit unions with more flexibility, including passage and enactment of the Credit Union Governance Modernization Act (CUGMA). This bill modernized the Federal Credit Union Act’s provisions related to member expulsion to keep credit unions, their members, and staff protected from illicit behavior. Additionally, NAFCU’s efforts led to House passage of legislation that would allow all credit unions to add unserved areas to their field of membership and a bill to reduce the number of required board meetings for well-run credit unions. The association will continue building on this support to seek their enactment this Congress. SECURING AN ENVIRONMENT THAT PROMOTES GROWTH AND REDUCES RED TAPE 23 THE NAFCU JOURNAL July–August 2023
Regarding digital assets, NAFCU successfully fought to ensure credit unions were included in stablecoin legislation discussion after the President’s Working Group on Financial Markets excluded the industry. NAFCU also stopped efforts to expand the Small Business Administration’s direct lending authority, which would have undermined private sector lending. NAFCU’s advocacy team also stopped legislation to limit overdraft protection programs, allowing for a fair, transparent, and competitive market for consumer financial services. WITH REGULATORS On the regulatory front, NAFCU strongly opposed the Consumer Financial Protection Bureau’s (CFPB) efforts to expand the scope of Regulation E and hold financial institutions liable for fraud on peer-to-peer platforms. NAFCU also advocated for the CFPB to consider additional ways to supervise nonbank fintech companies, limiting risks to consumers and creating a fairer regulatory environment. NAFCU led efforts to ensure the NCUA allowed credit unions to use distributed ledger technologies and successfully secured the agency’s release of additional guidance on how credit unions can better adopt digital assets and emerging financial technologies. Ahead of most credit unions’ implementation deadline for the Current Expected Credit Losses (CECL) standard, NAFCU’s efforts obtained additional guidance and tools from the NCUA to support industry compliance. NAFCU also advocated for additional flexibility and guidance for the NCUA on interest rate risk, including requesting the agency to raise the permissible interest rate ceiling to help mitigate interest rate risk during a difficult economic environment. Additionally, NAFCU’s ongoing advocacy efforts on field of membership reforms, subordinated debt, lending opportunities, and regulatory relief have set the industry up for continued success in 2023. 24 THE NAFCU JOURNAL July–August 2023
In 2022, the NAFCU regulatory compliance team provided member credit unions with a wide array of compliance assistance. The team answered more than 6,000 member questions through our direct compliance assistance inbox. In addition to our compliance hotline, the team authored numerous blogs, articles, and other tools to provide valuable compliance analysis and resources to NAFCU members. NAFCU continues to prioritize extreme member service, answering all compliance questions within one business day. Credit union compliance professionals had many challenges in 2022, from rising interest rates to increasing incidents of fraud, and the CFPB’s targeting of overdraft fees. Last year, the most frequent topics answered by the compliance team addressed the Bank Secrecy Act, Regulation Z, and Regulation E – part of these questions stemmed from various regulatory and legislative changes. Additionally, NAFCU continued to track litigation efforts related to regulatory compliance and notifies members through blogs, webinars, and other communications. The team also returned to public speaking and in-person events in 2022, with both Regulatory Compliance School and Regulatory Compliance & BSA Seminar held in-person. Members of the team presented at both events, in addition to moderating NAFCU webinars, providing trainings to member credit unions, and recording presentations for NAFCU’s first ever on-demand version of Compliance School. NAFCU’s compliance team will continue to provide timely updates to ensure NAFCU members have the most up-to-date information affecting compliance issues and will continue to provide tools and resources to help credit unions tackle all their compliance needs. COMPLIANCE RESPONSIVE RESOURCES FOR EMERGING TRENDS 25 THE NAFCU JOURNAL July–August 2023
NAFCU’s education team provides credit unions with the best training opportunities available for employees and volunteers at any level. The educational offerings are timely and incorporate the trends and changes affecting the industry today and into the future. In 2022, NAFCU offered 12 conferences and events, delivering forward-thinking content – designed to equip credit unions with the tools needed to grow and serve members – straight to attendees. Through these 12 events, NAFCU leaders connected in-person and virtually, attracting more than 3,100 registrants and bringing the credit union industry together with key experts. In addition, the association virtually met with nearly 1,000 credit union executives during the 2022 State of the Industry conference, covering the latest trends and opportunities affecting credit unions. NAFCU’s Online Training Center continued to be highly utilized, offering weekly live and on-demand webinars on the most prominent issues; it remains a valuable opportunity for credit union staff to stay up-to-date on the latest trends. In fact, throughout the year, nearly 5,000 credit union industry professionals streamed more than 16,000 hours – almost 2 years’ worth – of content. Building on the success NAFCU Networks has achieved since launching in 2020, the association launched a fresh look for its eight peer communities in 2022. The user-friendly, updated platform enhanced the member experience as they connected with peers and created additional opportunities for meaningful engagement. These EDUCATION ENHANCING RESOURCES TO MEET MEMBER NEEDS 26 THE NAFCU JOURNAL July–August 2023
free, member-only online communities were developed exclusively for credit union professionals to connect with others who serve in similar roles to share best practices, enjoy robust discussion, and problem solve in an informal setting. In keeping with NAFCU’s promise to listen and act on what members need and want from us, the association expanded the footprint of NAFCU Networks last year, adding virtual roundtables, educational opportunities exclusively for Network members, and in-person networking opportunities. As always, each of NAFCU’s conferences and online trainings are opportunities for credit union professionals to earn credits for prestigious designations, including the award-winning NAFCU Certified Compliance Officer (NCCO), NAFCU Certified Bank Secrecy Officer (NBCSO), NAFCU Certified Risk Manager (NCRM), and NAFCU Certified Volunteer Expert (NCVE). The association’s dedication to keeping credit unions informed remains constant and the dynamic nature of educational offerings stayed the course throughout the coronavirus pandemic. Credit unions’ commitment to serving their 135 million members and Main Street small businesses was unstoppable in 2022. NAFCU focused heavily on giving credit unions a voice on important issues and sharing unique stories with lawmakers, regulators, and members of the media. The association was featured in more than 1,700 news articles in 2022, including 400 national mentions in support of credit unions and NAFCU’s industry priorities. NAFCU also published five op-eds in key outlets including American Banker, The Hill, and RealClear Markets – and top trade publications like Credit Union Times and CUInsight. In addition, several of the association’s lobbyists were featured among The Hill’s Top Lobbyists. NAFCU’s advocacy was heavily recognized throughout business trades, including MarketWatch, Yahoo Finance, and Financial Regulation News, as regulations related to digital assets continued to be a focus in the financial industry. Outlets including the Wall Street Journal, POLITICO and Bloomberg amplified NAFCU’s unwavering advocacy to battle burdensome interchange regulation, inaccurate big bank claims, and onerous policies and rulemakings from regulators and lawmakers. NAFCU Chief Economist and Vice President of Research Curt Long was a key source for all things economy and inflation for Fox Business, MarketPlace, and PYMNTS. MEDIA UNDERSCORING THE CREDIT UNION DIFFERENCE ACROSS MEDIA 27 THE NAFCU JOURNAL July–August 2023
Randy Salser | NAFCU Services Corporation President Despite another year of unpredictable events, the Preferred Partners of NAFCU Services helped credit unions stay on track by providing the latest expert advice, resources, and market insights. These partners brought forth innovative ideas and strategies for various areas, including digital transformation, cybersecurity, employee retention and recruitment, fraud, and much more. Whatever the topic, these first-class companies played a vital role in propelling the industry forward. 2022 HIGHLIGHTS › Marked a decade of serving over half a million consumers annually, using our CULookup.com financial calculators to make financial decisions like mortgage terms, auto loans, savings and retirement plans, and more; › Continued development of our content delivery program; › Posted over 50 blogs with over 20,000 views; and › Produced 20 episodes of The CU Lab, our podcast series with more than 38,000 subscribers. This educational content remains available to all credit unions through the Online Training and Educational Resources page on the NAFCU website. To learn more about NAFCU Services and their Preferred Partners, visit nafcu.org/nafcuservices. NAFCU Services is a wholly owned subsidiary of NAFCU. B. Dan Berger | NAFCU Services Corporation Chair and CEO NAFCU SERVICES CHAIR AND PRESIDENT’S REPORT 28 THE NAFCU JOURNAL July–August 2023
NAFCU remained committed to ensuring a strong credit union industry in 2022 and its extreme member service – bolstered by best-in-industry advocacy, compliance assistance and education – helped members maneuver a challenging economic environment and grow. As responsible stewards of membership dues, NAFCU continued to invest in areas to support member success. NAFCU again reported a strong financial performance in 2022 – reflecting the strength and resiliency of the credit union industry as the country continued to recover from a global pandemic. This performance is highlighted by NAFCU’s drive to be the best industry representative in Washington, D.C., innovate new services and technology and offer credit unions the best resources in a cost-effective, efficient manner. In 2022, NAFCU’s equity increased $1,193,507 and its assets grew $2,299,796. This growth ensures that NAFCU remains at the forefront of advocacy, education and compliance assistance for the credit union industry. NAFCU Services Corporation also bolstered partnerships and products in order to provide the best available solutions for credit unions and keep them competitive. NAFCU will continue to prioritize credit union members’ needs and concerns in 2023 to support industry growth, innovation, regulatory relief and a level playing field. We exist to serve you. Thank you for your ongoing support, guidance and belief in what we do. We look forward to working with you in the coming year to secure an even brighter future for our industry. NAFCU TREASURER’S REPORT 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 MAR-23 5% 0% 10% 15% 20% 25% 30% 35% 40% 45% 50% 47% NAFCU % of Total Assets: FISCUs 60% 62% 64% 66% 68% 70% 72% 74% 76% 78% 80% 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 MAR-23 78% NAFCU % of Total Assets: FCUs 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 MAR-23 60% 65% 55% 50% 45% 40% 35% 30% 63% NAFCU % of Total Assets: FICUs Karen C. Harbin, CPA | NAFCU Board Treasurer 29 THE NAFCU JOURNAL July–August 2023
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