Credit Union Loan Balances Soar Again Posted by AVCU on 10:29 AM

 Credit unions continued their pattern of strong loan growth in September, but CUNA Chief Economist Mike Schenk said Monday the growth will fade as the Fed continues raising interest rates.

“That strong loan growth will be tapering off as we go forward,” Schenk said.

CUNA’s Monthly Credit Union Estimates released Friday showed credit unions made big gains in all major areas except first mortgages. Total loan balances grew 19.6% to $1.5 trillion from a year earlier, and rose 2.1% from the previous month, compared with an average September gain of 0.9%.

Schenk said the report showed the same strong gains in loan balances from previous months this year.

The 2.1% gain from August to September marked the third month in a row with monthly gains exceeding 2%.

“Looking back over 30 years, there has never been a calendar year where we’ve had three months of loan growth that fast. It’s pretty incredible,” Schenk said.

Auto loans remain one of the leading growth areas.

New car loans grew 22.7% to $176.6 billion from a year earlier, and rose 3% from the previous month, compared with an average September gain of 1%.

Used car loans grew 19% to $309.9 billion from a year earlier, and rose 2.1% from the previous month, compared with an average September gain of 0.8%.

The Fed G-19 Consumer Credit Report released Monday showed credit unions increased their share of the nation’s total balance of motor vehicle loans. Credit unions had a record 34.8% share as of Sept. 30, up from 33.3% in June and 31.1% in September 2021.

Credit unions’ share was only about 25% in 2015. It rose to a high of 32.6% by the end of 2018 and fell to a low of 30.1% in June 2021 before setting new records in June and September this year.

The G-19 also showed credit unions increased their share of credit card debt.

Credit unions held $70.3 billion in credit card balances as of Sept. 30, up 14% from a year earlier, and up 0.7% from August, compared with an average September gain of 0.3%.

Credit unions’ share was 6.3% in September, compared with 6.2% in August and 6.3% in September 2021.

Banks held $1.02 trillion in credit card debt on Sept. 30, up 16.8% from a year earlier and up 0.4% from August. Banks’ share was 91.0% in September, unchanged from August and up from 90.2% in September 2021.

However, real estate is suffering.

The Mortgage Bankers Association estimated that third-quarter originations of first mortgages were $480 billion, down 55% from a year earlier. It forecast fourth-quarter originations will fall 59% to $410 billion.

Among the Top 10 credit unions by assets, residential real estate loan originations were $11.8 billion in the third quarter, down 33% from $17.6 billion a year earlier and down from $15.4 billion in the second quarter.

On the balance sheet, CUNA estimated that all credit unions held $549.4 billion in first-mortgages, down 2% from a year earlier, and up 1% from the previous month, compared with an average September gain of 1.1%.

Second-lien mortgages grew 17.8% to $100.3 billion from a year earlier, and rose 3.6% from the previous month, compared with an average September gain of 0.2%.

While loans have been growing quickly, savings have lagged. Savings were $1.9 billion on Sept. 30, up 6.6% from a year earlier, and up 0.7% from the previous month.

“And what all of that means is the loan-to-share ratio is rising and has been rising pretty strongly,” Schenk said.

The loan-to-share ratio was 79.0% on Sept. 30, up from 77.9% a month earlier and 70.4% in September 2021.

“That compares to a pre-pandemic reading of 71%, which is pretty close to the long-term average of 73%,” Schenk said. “What that means is there’s not a lot of liquidity, or liquidity has been tightening very significantly over the course of the year and it certainly did in the month of September.”

Schenk pointed to loan quality and membership growth as two of the brighter trends seen in its September report.

Credit unions had 136.1 million members on Sept. 30, up 3.8% from a year earlier, which Schenk said was “incredible” compared with annual U.S. population growth of about 0.5%.

The 60-days-plus delinquency rate was 0.49% on Sept. 30, up from an all-time low of 0.42% on March 31 and running at about half the long-term average delinquency rate of 0.96%.

“Delinquency held steady near all-time lows,” Schenk said.

PSCU Finds Energy Fueling Member Spending Posted by AVCU on 9:05 AM

 Credit union members continued to increase their spending in September with rising prices, especially for energy, being a major factor, according to a PSCU report Tuesday.

PSCU, a payments CUSO based in St. Petersburg, Fla., showed overall dollars spent on credit cards in September was 13% higher than in September 2021, while the number of transactions rose 11%. Debit spending rose 6%, while transactions rose 3%.

But the PSCU Payments Index found the disparity between dollars and transactions was especially high for energy: From gasoline to utilities.

“The U.S. economy continues to face persistently high inflation, a looming recession and rising energy prices. Yet consumer purchasing activity showed continued resilience in both credit card and debit card volume in September,” the report said.

Spending for gasoline rose 26% by credit card — twice as fast as the 13% increase in transactions. By debit, spending rose 13% while transactions rose 3%.

For electricity, natural gas and water, spending rose 26% while transactions grew 12%. By debit, spending rose 14% while transactions grew 5%.

Among credit union members receiving their first deliveries of fuel oil or propane in September — typically in the north— spending for those home heating fuels rose by 50%, while transactions rose 25%. By debit, spending rose 45%, while transactions rose 14%.

The U.S. Census Bureau reported Oct. 14 that retail spending, excluding automobiles and parts, rose 9.4% in September from a year earlier.

Census found grocery store spending rose 7% in September from a year earlier, Census reported. At PSCU, spending rose 17% by credit and rose 7% by debit.

Spending at restaurants and bars rose 13% in July from a year earlier, Census reported. At PSCU, spending rose 21% by credit and rose 7% by debit.

The average credit card balance was $2,797 per active account handled by PSCU in September, up 6.1% (or $160) from a year earlier.

“Credit card balances surpassed the September 2020 results of $2,787 for the first time since the decline in card balances that began in early 2020. The credit card delinquency rate for September was 1.74%, 16 basis points lower than pre-pandemic September 2019 levels,” the report said.

The Fed’s G-19 Consumer Credit Report released Oct. 7 showed credit card balances grew 13.3% to $69.8 billion in August from a year ago, and rose 1.2% from the previous month, compared with an average July-to-August gain of 1% from August 2015 through August 2021.

The PSCU Payments Index was based on data from credit unions that have been processing payments with PSCU since January 2020. It encompassed 2.9 billion transactions valued at $144 billion of credit and debit card activity in the 12 months ending Sept. 30.

CUSOs: Member Spending Shows Inflation Stress Posted by AVCU on 2:55 PM

 Credit union members are paying much more for gasoline, groceries and restaurant meals than a year ago with inflation becoming a growing contributor, according to reports from payments CUSOs.

PSCU’s Payments Index released June 16 showed members whose credit unions use PSCU services spent 15% more by credit card and 6% more by debit in May than they did in May 2021.

The changes bracketed the 11.7% gain reported by the Census Bureau June 15 for retail spending in May, excluding vehicles and auto parts.

PSCU’s numbers reflected a shift from debit to credit with the debit gains smaller than Census figures and the credit gains larger.

Co-op Solutions of Rancho Cucamonga, Calif., also reported strong one-month spending gains across most categories among members at credit unions in its network.

Beth Phillips, director at Co-op Solutions, said May’s data shows a continuation of the year-long shift away from debit spending to credit.

“Debit card users are pulling back on spend, possibly moving to credit for smaller, everyday purchases, while, reserving their cash available for larger purchases, like home improvement, or to keep it on hand due to economic conditions,” Phillips said.

Brian Caldarelli, PSCU’s EVP and CFO, said overall consumer spending growth remained strong throughout May 2022, with gasoline showing the top growth rates in both credit and debit as fuel prices remain elevated.

“The Consumer Price Index increased this month as we continue to face the highest level of inflation in more than 40 years,” Caldarelli said. “While the Federal Reserve announced another rate increase this week, a pause in the series of aggressive rate hikes is unlikely until inflation returns to an acceptable level.”

By segment, Census and PSCU reported the following 12-month gains in May:

• Gasoline spending rose 43.5%, according to Census. PSCU reported gains of 54% by credit and 32% by debit.
• Grocery spending rose 7.9%, according to Census. PSCU reported a gain of 15% by credit and 5% by debit.
• Restaurant spending rose 16.8%, according to Census. PSCU reported gains of 26% by credit and 8% by debit.

The PSCU report found a “notable lift in restaurants as consumers continued to return to dining outside the home, which comes at the expense of less growth in the grocery store sector.”

Average credit card account balances among PSCU-affiliated members finished May 2022 at $2,724, up 2.9% compared to May 2021. This was the third consecutive month in which year-over-year growth in balances was greater than 2%. Average credit card account balances were down 5.5%, or $157, from May 2021.

“As consumers have less liquidity, we see a return to a greater reliance on credit activity as the market deals with persistently high inflation,” the PSCU report said. “After a period of tangible credit card balance paydowns, we could see growth in balances from more recent bigger-ticket travel and entertainment sector purchases.”

Co-op Solutions’s June 15 report also showed credit balances have increased steadily since the beginning of 2022 on a year-ago basis. May 2022 showed the strongest growth trend yet, with 8.1% higher balances as compared with May 2021 and a lift of nearly 1% over April 2022.

The Fed’s G-19 Consumer Credit Report released June 7 showed the amount of credit card debt held by both banks and credit unions in April continued to inch closer to the level of February 2020, the month before COVID-19 was declared a pandemic and credit card debt began to plummet.

Credit unions held $64.7 billion in credit card debt in April, up 10.8% from a year earlier, but still 0.9% below February 2020. Banks were just 0.2% below February 2020.

PSCU’s February Payments Index was based on data from credit unions that have been processing payments with PSCU since January 2020. It encompassed 2.7 billion transactions valued at $137 billion of credit and debit card activity in the 12 months ending May 31.

Nearly Half of High-Income Earners Now Live Paycheck to Paycheck Posted by AVCU on 2:29 PM

 As the pandemic continued to weigh on the economy in the early months of 2022, the United States government reported that in­flation climbed to 7.5% in the past 12 months. These factors are making it harder for consumers in all income brackets to make ends meet. New Reality Check: The Paycheck-To-Paycheck Report: The Wealth Divide - March 2022 - Discover how inflation has increased the shares of consumers living paycheck to paycheck across income levels

PYMNTS’ research finds that 64% of consumers lived paycheck to paycheck in January 2022 — up from 61% in December 2021. The share of consumers living paycheck to paycheck has fluctuated in the past 12 months, but the last two months of 2021 witnessed a pronounced uptick. The share of paycheck-to-paycheck consumers is now just two percentage points lower than the high of 66% seen in March 2020.

These are among the surprising findings to emerge from New Reality Check: The Paycheck-to-Paycheck Report, a PYMNTS and LendingClub collaboration. In The Wealth Divide edition, we examine why consumers across different generations live paycheck to paycheck and what they see as the most prominent stressors on their finances. The report draws on insights from a survey of 2,633 U.S. consumers conducted from Jan. 11 to Jan. 18, 2022, as well as an analysis of other economic data.

More key findings from the study include:

New Reality Check: The Paycheck-To-Paycheck Report: The Wealth Divide - March 2022 - Discover how inflation has increased the shares of consumers living paycheck to paycheck across income levels

• Forty-eight percent of consumers earning more than $100,000 per year lived paycheck to paycheck in January 2022, representing a six percentage point increase from December 2021. The share of those who earn between $50,000 and $100,000 who report living pay­check to paycheck also is on the rise. In January 2022, 67% reported living pay­check to paycheck — up from 66% in December 2021. The share of those earning less than $50,000 and living paycheck to paycheck remained the same from De­cember 2021 to January 2022 at 77%.

• The difference in savings levels between consumers living paycheck to paycheck with issues paying their bills and those without issues widens among lower-income consumers. Declared savings among consumers with incomes more than $100,000 living paycheck to paycheck are nearly identical among those with issues paying their bills ($11,168) and those without ($12,881). Consumers earning $50,000 to $100,000 per year and living paycheck to paycheck with issues paying bills reported an average savings of $2,360, compared to $7,273 for those without issues. Those earning less than $50,000 per year living paycheck to paycheck with issues paying their bills had an average savings of $788, compared to $4,369 for those without issues.New Reality Check: The Paycheck-To-Paycheck Report: The Wealth Divide - March 2022 - Discover how inflation has increased the shares of consumers living paycheck to paycheck across income levels

• One-quarter of high-income consumers who live paycheck to paycheck with issues paying their bills say they would not be able to pay a $400 emergency expense. This share increases among those with lower incomes. When asked how they would pay a $400 emergency expense, 43% of consumers living paycheck to paycheck who struggle to pay their bills each month say they would not be able to pay. Among consumers who earn more than $100,000, 23% who live paycheck to paycheck with issues paying their bills say they would not be able to pay a $400 emergency expense. Fifty-two percent of those who earn less than $50,000 and 38% of those earning $50,000 to $100,000 say they would not be able to pay a $400 expense.

Top 5 Ways to Attract Quality Hires During the Employee Shortage Crisis Posted by AVCU on 11:54 AM

 At the time of writing in late 2021, the U.S. has more than 10 million open jobs, a record-setting number. Job vacancies are so high, they surpass the number of unemployed Americans looking for work. In fact, there are over one million more unfilled positions than unemployed people. For companies trying to hire, there’s a lot of competition. 

Job seekers have the upper hand due to more demand than ever — but what do they really want? A bigger paycheck? Yes, but their salary isn’t the only priority. We’ve researched the reasons behind the employee shortage crisis. Here are some of the top ways you can encourage quality hires, and retain current employees, during a worker shortage:

Market your business with the help of current employees 

Employer reviews are extremely valuable for job seekers, especially while choice is abundant. 86 percent of applicants research company reviews and ratings in their job search. This includes reading customer reviews, but more than likely, they’ll be looking for existing and previous employees’ opinions. 

To provide job seekers with a behind the scenes look of your workplace, ask your current employees to share their experiences online through a Glassdoor account, Google reviews or even via social media. You should even go so far as to encourage candidates to check out your reviews — this not only demonstrates a level of confidence in your employees’ satisfaction, it shows that your company is comfortable publicly acknowledging their opinions. Reviews will provide an internal benefit as well — by providing a review, employees can help to shape company initiatives and attract talent similar to themselves. 

If you’re worried about negative reviews, you might have a longer project on your hands. Applicants and current employees alike are looking for perks such as flexible workspaces, competitive benefits and positive company culture (spoiler: we talk about these factors in other tips) and they’ll look for evidence of these in employees’ reviews. 

Use your job descriptions to show off your company culture 

Company culture is important to nearly 1 in 4 Americans, so be sure to show off yours. First things first though, you need to have a positive company culture to market one. So, what should you be doing to ensure you do? Value your employees’ time and effort, encourage feedback, promote wellness and invest in your employees through training and mentoring — there are many more great tips online. Company culture is important for job retention too, with 47 percent of job seekers pinpointing a lack of company culture as the main reason for wanting to leave their current position. 

One of the first places you should speak about your company culture is within your job descriptions. Job descriptions shouldn’t just be a list of your expectations and requirements for the role. It’s imperative that you highlight what the candidate can get out of working for your company. You can even go a step further and include employee testimonials or videos of current employees within the job posting. Going the extra step and providing detail about employee perks could be the differentiating factor between your position and a competitor’s.

Showcase a flexible workplace within the recruitment process

Around the world, office workers have replaced long commutes with a short walk from the bedroom to the living room or the equivalent. On top of this, the 9-5 workday has been pronounced dead by Salesforce, which added that “the employee experience is about more than ping-pong tables and snacks.” People have gotten used to working remotely — it frees up time, saves money and often allows for more flexibility around work hours. As we move past the pandemic, more and more leading companies are rolling out plans to permanently allow staff the choice to work from home due to the demands of employees and job seekers.

Some researchers believe job flexibility, such as having the choice of where and when to work, has become more important than pay. A recent survey showed that 56 percent of respondents said flexibility was their primary reason to look for a new job. Even where money can be tight, the survey noted that flexible work conditions were the top concern for the lowest-paid Americans (earning less than $30,000). 

Businesses that are serious about providing a flexible workplace should demonstrate its priority within their recruiting process. Surveys have shown that over 78 percent of candidates say the candidate experience indicates how a company values its people. Consider utilizing recruitment tools such as candidate-scheduled video interviews — this shows the candidate that you value their time, and can easily adapt the hiring process to their schedule. 

Highlight the importance of mental health in your workplace

If you’re in a good position to offer competitive benefits, you should certainly do so. Mental health awareness has skyrocketed in the last few years, and for good reason. A report that compared the mental health of workers in 2020 to 2019 showed that 46 percent of respondents were struggling with mental health issues, compared to 39 percent a year earlier. Uncertain working conditions and the risk of employee burnout while juggling other commitments can be tremendously tough, and job seekers are aware of challenges. 

Candidates can grasp the importance your workplace puts on mental health through the information online. Evidence should be available in employee reviews from past employees and even be a benefit that’s listed in your job description. Perhaps you even have additional information listed on your website.

If mental health hasn’t been a big factor in your business so far, don’t let that hold you back. There are ways to promote mental wellness without costly investments or timely rollouts. Promote a healthy work/life balance with a few of the following examples; remind workers that they don’t need to answer late-night emails, tell employees to step away from their desks and stretch or offer meditation sessions or breathing exercises. There is an abundance of ideas out there that can help you to improve the emphasis you put on mental health.

Pay a highly competitive wage for low paid workers

Yes, we’re ending our list with the obvious one. But it’s important to understand why you should be upping wages if you can. The pandemic has changed the way people work — particularly in low-paid, labor-intensive jobs. At the beginning of the pandemic, front-line workers such as healthcare staff, long-term home care workers, truck drivers and cashiers were celebrated for their service during a tough and unpredictable time. As time passed, the applause didn’t cut it anymore, especially when they were risking their health (and chances are, with no or little sick pay) and wages remained too low to adequately cover living expenses. 

If you can afford to increase wages, even fractionally, it may be a very effective way to improve your applicant pool. Additionally, the demand for workers has given applicants and employees a bargaining power they haven’t had before, which is pushing up wages. Companies that don’t comply risk being sidelined for better-paying positions. For example, the hospitality and healthcare industries (two industries that house many low-paid positions) have seen average hourly wages increase well above the trend line. In 2021 (January to August), wages in the hospitality sector rose by 12 percent after dropping by 1.2 percent in 2020. Healthcare and education wages increased by 5.7 percent in 2020 and continue to rise in 2021. In comparison, these wages only increased by 1.4 percent in 2019. 

Of course, not all businesses can afford to increase their wages, especially with supply prices also rising. That’s why we made sure to cover four effective ways to attract applicants that don’t require such a large investment.  

Record-breaking 4.3 million Americans quit their jobs in August, new data show Posted by AVCU on 4:27 PM

 Across the country, people are leaving their jobs at record rates.

According to data released by the U.S. Bureau of Labor Statistics on Tuesday, 4.3 million Americans quit their jobs in August. The nationwide quit rate increased to 2.9% of the workforce. That's the highest percentage ever reported by the BLS Job Openings and Labor Turnover Survey series.

To put August's numbers in perspective, the number of workers who quit their jobs rose by 242,000 from July — and by around 1.3 million since August 2020, which recorded a total of almost 3 million quits.

Experts stress that people are leaving their jobs as workers across the country are demanding higher pay, better employment conditions and critical support in their daily lives.

Where are the workers?:What’s going on with jobs? 5 takeaways from September hiring trends

"There is no 'labor shortage.' There's a child care shortage, a living-wage shortage, a hazard pay shortage, a paid sick leave shortage, and a healthcare shortage," Robert Reich, UC Berkeley professor of public policy and former U.S. Secretary of Labor, wrote on Twitter Tuesday. "Until these shortages are remedied, Americans won't return to work anytime soon."

'Crisis level':Child care providers grapple with a worker shortage as federal relief is slow to help.  In addition, job openings declined to 10.4 million by the end of August — dropping by 659,000 from July. 10.4 million is still a high number, especially in comparison to last year. In August 2020, there were about 6.5 million job openings.

Julia Pollak, the chief economist at ZipRecruiter, says the high number of job openings can contribute to the quit rate.

"There are now about 50% more job openings than there were before the pandemic," she told USA TODAY. "Someone who was passively looking for a new job before might have seen five or six job postings that are relevant. Now they're seeing 10 or more. There's just more attractive alternatives."

Pollak acknowledged there may be potentially positive effects that come with these employment shifts, with pressure gaining on companies to create healthier work environments and competitive pay and benefits, for example.

Pollak added that there's been a significant increase in demand for remote positions since the beginning of the pandemic. More than 50% of surveyed job seekers on ZipRecruiter are looking to work from home.

"That's a staggering number because typically only about 10% of jobs offer that opportunity," she said. "Only about 37% of jobs in the U.S. could theoretically be done from home. The majority of jobs must be done in person, on-site... [And] those major industries that require people to work on-site, in close contact with other people, those are the ones that have seen the steepest increases in quits."

According to the recent JOLTS report, the rate of total separations (including quits, layoffs and discharges) nationwide rose from 3.9% in July to 4.1% in August. Industries that saw the highest separation rates in August included accommodation and food services, leisure and hospitality, and retail trade.

The number of hires also decreased in August, to 6.3 million — down by 439,000 from July. The rate of layoffs and discharges decreased slightly, from 1% in July to 0.9% in August.

Will these trends continue? Pollak noted that it's important to prepare for lasting impacts.

"Anyone who expects that these things will be really short-lived and transitory has been proved wrong," she said. "[Think of] the companies that told their workers to go work from home in March (2020) for the next two weeks — there's two weeks clearly turning into two years, and possibly more. So this is not just a short term issue."

Senate Bill Would Help Workers Build 401(k)s While Repaying Student Loans Posted by AVCU on 9:47 AM

 Senate Finance Committee Chairman Ron Wyden, D-Ore., reintroduced legislation Thursday that allows employers to make “matching” contributions to a 401(k) retirement plan while their employees make student loan payments.

Under the Retirement Parity for Student Loans Act, recent college graduates who cannot afford to save money above their student loan repayments would no longer have to forgo the employer match.

“Right now, generations of Americans are struggling under the crushing burden of student debt,” Wyden said in a statement. “They are putting off buying a home, having children and saving for retirement to pay down their student loans. As the cost of higher education continues to skyrocket, so does the debt.”

The voluntary benefit that employers may elect to provide to workers applies only to repayment of student loan debt that was incurred by a worker for higher education expenses, according to a summary of the bill.

A worker must certify the amount of student loan repayments that have been made during a plan year to receive the benefit.

The rate of matching for student loans and for salary reduction contributions must be the same, the summary states.

“For example, if a 401(k) plan provides a 100% matching contribution on the first 5% of salary reduction contributions made by a worker, then a 100% matching contribution must be made for student loan repayments equal to 5% of the worker’s pay,” according to the summary.

Special rules apply if a worker makes both salary reduction contributions and student loan repayments.

“Under those rules, student loan repayments are only taken into account to the extent that the worker has not made the maximum annual contribution to the retirement plan — for example, the annual maximum contribution limit per worker is generally $19,500 for 2021,” the summary states.

The Retirement Parity for Student Loans Act “would give employers the ability to make matching contributions to their employees’ retirement, as the employees simultaneously make their student loan payments,” Wyden said.

Wyden added that while he supports student debt forgiveness, “it’s important to put every option on the table to relieve this burden for millions of Americans.”

He cited research from the Employee Benefit Research Institute that found that households headed by a person age 35 or younger with a college degree and no student loan debt report median defined contribution account balances of $30,000, compared with $15,000 for similar families that have student loan debt.

The bill, first introduced in 2018, is cosponsored by Sens. Maria Cantwell, D-Wash.; Sheldon Whitehouse, D-R.I.; Sherrod Brown, D-Ohio; and Ben Cardin, D-Md.

Biden plan calls for $100 billion in new EV consumer rebates Posted by AVCU on 9:23 AM

 The Biden administration's $174 billion proposal to boost electric vehicles calls for $100 billion in new consumer rebates and $15 billion to build 500,000 new electric vehicle charging stations, according to a U.S. Transportation Department email sent to congressional staff and seen by Reuters.

The EV rebates, part of a $2.3 trillion infrastructure and jobs proposal, could be a big boost to U.S. automakers, especially General Motors and Tesla Inc., which no longer qualify for $7,500 tax credits after they sold more than 200,000 zero-emission models.

The White House declined to say how the $100 billion would be distributed or how much the grants will be.

In 2019, Senate Democratic Leader Chuck Schumer proposed awarding $392 billion in subsidies for owners to trade in gasoline-powered vehicles at least eight years old and in driving condition for EVs, plug-in hybrid or fuel-cell cars. The old vehicles would be scrapped.

The Biden plan also calls for $20 billion for electric school buses, $25 billion for zero emission transit vehicles and $14 billion in other EV tax incentives.

Treasury said in a report the proposed incentives are "to encourage people to switch to electric vehicles and efficient electric appliances."

U.S. Sen. Debbie Stabenow and Rep. Dan Kildee, both D-Mich., have been working on a bill to revise and expand the EV tax credit, they said in a recent joint interview with Reuters.

Kildee wants to skew the credit in favor of vehicles with more affordable vehicles with longer range, to "democratize the electric vehicle market."

He said they are "looking at ways to make the credit more accessible to middle- and lower-income families, potentially even making the credit refundable."

Kildee said EVs are "where the market is going -- full stop. The only question that we have to answer is are these going to be vehicles made by American workers." Kildee said they could also introduce a credit for used EV purchases.

Stabenow said it was important to give automakers incentives to produce EVs in the U.S.

"China has committed $100 billion to grab this market -- both battery cell production but also in other component parts of electric vehicles," Stabenow said. "We better take it seriously."

The Biden plan also calls for $80 billion for rail, including $16 billion for Amtrak's national network and $39 billion to fix the northeast corridor -- especially infrastructure in the New York City-area.

7 takeaways from NCUA’s 4Q data Posted by AVCU on 8:15 AM

Credit unions can finally see the full picture of how the industry performed in 2020, and while it’s not pretty, it could have been worse.

Membership continued to grow, lending never dried up – thanks in large part to the mortgage-refinancing boom – and there was no liquidity crisis. However, as the National Credit Union Administration’s latest Quarterly Credit Union Data Summary shows, there were plenty of stiff headwinds at the close of last year that will continue to dog the industry well into 2021.

Deposit growth remains extremely high, with the industry closing out 2020 with insured shares and deposits up nearly 20% from one year before. On top of that, lending continued to slow, ending the year with growth of just 4.9%, and the loan-to-share ratio fell by more than 10 points compared to where it stood at the end of 2019.

If there’s good news to be found, it’s that the pace of consolidation in the industry wasn’t largely impacted by the pandemic and recession, and delinquency rates remain low.

•  Assets and deposits surge

Credit union assets rose more than twice as fast in 2020 as they did in 2019, and the NCUA report shows the industry closed out last year with total assets of $1.84 trillion, a 17.7% increase from the previous year. By comparison, assets were up by 7.8% at the end of 2019.

Insured shares and deposits were up 19.8% to $1.47 trillion, compared with growth of just 7.4% the year before.

Total investments with maturities of three months or more were up a whopping 34.5% to reach $353.8 billion. That’s compared to growth of just 3.9% the year before, and reflects that credit unions are actively looking for other revenue opportunities as deposits roll in and lending slows.

•  Membership growth continues to slide

The industry had 136 fewer federally insured credit unions at the end of 2020 than it had at the end of 2019, for a total of 5,099 active institutions. That is roughly the same rate of consolidation seen the previous year and is consistent with long-running trends, the agency said.

However, membership growth slowed slightly, with 4 million new members joining the rolls compared to 4.2 million the year before. Total membership at the end of 2020 stood at 124.3 million.

Federal charters currently comprise about 62% of the industry, with state-chartered institutions making up the remainder.

The number of credit unions with a low-income designation reached 2,642 at the end of the fourth quarter, up from 2,605 at the end of 2019, a slowdown compared to the 51 CUs that received that designation in 2019.

•  Most lending slows

Total loans increased just 4.9% last year to reach a total of $1.16 trillion. By comparison, lending rose 6.2% in 2019.

Still, the industry’s average outstanding loan balance was up 3.2% from one year before, compared with growth of just 2.4% in 2019, reflective of the massive impact the home refinancing boom has had on credit union loan portfolios.

Mortgages closed out the fourth quarter with a 6.3% year-over-year lift, though that represented a slowdown from the 9% year-over-year growth seen at the end of the third quarter.

Auto loans were a mixed bag, rising just 1.3% overall, with used auto loans up by 4.5% and new auto loans down 3.7%. Credit card balances were also down, falling 6.4% to $61.8 billion. Commercial lending remained a bright spot, rising 15.2% year-over-year to reach $94.3 billion. That’s a slight decline from the 15.3% growth rate reported one year prior.

The industry’s loan-to-share ratio fell by more than 10 points to 73.2%, down from 84% at the end of 2019 and down from 85.6% at the end of 2018.

•  Delinquencies down again

Despite the pandemic, recession and widespread unemployment, delinquency rates remain low. The industry's delinquency rate finished the year at 60 basis points, a 10-point drop from the fourth quarter of 2019.

Many loan categories saw delinquency rates stay steady or even improve. Fixed-rate real estate loans held at 43 basis points at the end of the fourth quarter, equal to where they stood one year before, while credit card delinquency rates fell substantially, finishing the year at 102 basis points, compared to 140 basis points at the end of 2019.

Delinquency rates on auto loans declined from 64 basis points at the end of 2019 to 50 basis points at the end of 2020, while commercial loans saw delinquencies tick up slightly, from 64 basis points at the end of 2019 to 68 basis points at the end of 2020.

The industry’s charge-off ratio stood at 45 basis points at the end of 2020, compared with 56 basis points the year before.

•  Earnings stumble

Net income fell 14.9% compared to the fourth quarter of 2019, including a 1.8% ($1.1 billion) decline in interest income. However, noninterest income was up 11.3% ($23.6 billion) due mainly to what NCUA called “growth in other operating income.”

Interest expenses were also down, falling 11%, or $1.5 billion, from the end of 2019. Noninterest expenses, however, were up 6% to total $51.3 billion, with much of that driven by rising labor costs, which rose by 7.8% year-over-year, NCUA reported.

Credit unions’ aggregate net interest margin was up just 0.8% to $48.1 billion, compared to growth of nearly 8% at the end of 2019.

Allowances for credit losses surged by 30% to total $8.5 billion, compared with a decline of 0.8% in 2019.

•  In 2020, bigger was better

Large credit unions continue to make most of the gains for the industry. Institutions with $500 million of assets or more hold 82% of all assets but make up less than 13% of the industry. Credit unions with at least $1 billion of assets saw lending increase by 9.2% while membership was up 9.7% and net worth increased 11.8%. Those with assets of $500 million or more also saw growth in those areas but at a slower pace.

Credit unions in every other asset category reported declines in lending, membership and net worth.

•  Small credit unions getting squeezed

Return on average assets for the industry fell sharply year-over-year, dropping from 93 basis points at the end of 2019 to 70 at the close of 2020. Median ROA was 40 basis points, a 20 basis-point decline from where things stood one year prior.

While institutions of all sizes saw ROA decline by similar margins, the situation is worse at the lower end of the asset spectrum. ROA for credit unions with assets of $1 billion or more – which represent less than 1% of all active institutions – stood at 0.78% at the end of the fourth quarter. Meanwhile, credit unions with assets of $10 million or less – which make up over 22% of the industry – reported ROA of just 0.06%.

Overall, small credit unions – by NCUA’s definition, those with assets of $100 million or less – reported ROA of 0.37%.

Credit Unions Kept Pace With Mortgages in 2020 Posted by AVCU on 9:27 AM

 Credit unions kept up with other lenders in mortgages last year, while falling behind in automotive loans.

Data released Tuesday by the FDIC showed the economic effects of the pandemic were similar for banks and credit unions: Big increases in savings, small growth for loans and surprising resilience in returns on average assets.

Credit unions held $384.5 billion in auto loans as of Dec. 31, just 0.9% more than a year earlier, according to the Credit Union Trends Report released Tuesday by CUNA Mutual Group of Madison, Wis.

Meanwhile, auto loans at banks grew 1.7% to $491.7 billion, and auto loans held by captives and others grew 9.1% to $351.7 billion.

Until mid-2019, credit union auto loans were growing much faster than banks. Since then, growth rates at banks have been at least twice that of credit unions.

As a result, credit union market share has shrunk. They ended 2020 with 31.3% of automotive loans, down from 32.1% a year earlier and a post-Great Recession peak of 32.6% in 2018.

New car loans fell 3.8% to $144 billion in 2020 after falling 0.1% in 2019. Used car loans grew 4% to $240.6 billion last year, the same pace as 2019.

Steve Rick, chief economist for CUNA Mutual Group, said he expects new auto loans to resume growth in the second quarter. He said several factors combined last year to drive down automotive lending.

“The pandemic raised job and income insecurity among potential new auto buyers, rapid loan originations two to three years ago precipitate larger loan balance amortization today, new auto sales declined 14% over the last year, members used ‘cash out’ funds from mortgage refinances to pay off auto loans and rapid growth of indirect auto lending has leveled off,” Rick said.

Credit unions fared better with mortgages. They held $523.3 billion in first mortgages on Dec. 31, up 10.9% from the end of 2019. Banks held $2.2 trillion in residential mortgages on Dec. 31, up 0.4% from a year earlier.

Fixed-rate first mortgage loan balances rose 14.2% in 2020, the fastest annual pace since the 17.6% reported during the housing bubble of 2008, according to CUNA Mutual Group.

Like autos, household saving trends cut into balances for credit cards and home equity lines of credit. Credit cards fell 6.4% to $62.6 billion and second-lien real estate loans fell 7.5% to $86 billion “due to members rolling existing loan balances into refinanced first mortgages,” Rick said.

“By year-end, fixed-rate first mortgages made up 33.7% of all loans, the highest in credit union history,” he said. Their share of the portfolio was up from 31% at the end of 2019 and 22.6% at the beginning of the Great Recession in 2007’s fourth quarter.

However, mortgage balances have been highly managed. Banks have tended to sell a much higher percentage of their mortgages, although credit unions have increased their sales in recent years.

A truer picture of the trend is mortgage originations. Credit unions originated $291.1 billion in first mortgages in the 12 months ending Dec. 31, up 63% from 2019, according Callahan & Associates, a credit union company based in Washington, D.C.

Originations for other lenders increased at the same rate to $3.4 trillion, comparing data from Callahan and the Mortgage Bankers Association, also of Washington, D.C.

Those numbers showed credit unions had 8% of the $3.7 trillion in originations last year, about the same share as the year before.

Narrowing interest margins and lower fees have cut into earnings for more than a year, but the pandemic triggered huge loan loss provisions for both banks and credit unions. The provisions cut deeply into earnings, but things could have been worse. Both banks and credit unions ended the year with margins at or slightly below those of 2019’s fourth quarter.

Banks were much more aggressive in making provisions for potential loan losses after COVID-19 was declared a pandemic March 11, 2020.

Banks’ provisions each quarter in 2019 had ranged consistently between an annualized 0.28% and 0.32% of average assets, but in 2020 they ramped up to 1.08% in the 2020’s first quarter and 1.20% in the second quarter. Banks dropped them just as dramatically to 0.27% in the third quarter and 0.07% in the fourth quarter.

Credit unions reacted slower. Their provisions ranged from 0.42% to 0.44% in 2019. In 2020 they rose, but peaked at a relatively lower level: 0.64% in 2020’s second quarter. They have subsided more gradually as well. In the fourth quarter they were 0.30%.

Callahan has estimated credit unions’ annualized return on average assets (ROA) was 0.83% for the three months ending Dec. 31 — just 2 basis points above 2019’s fourth quarter and up from the first-quarter low of 0.53%.

Banks had a similar pattern. Their pre-tax ROA was 1.38% for the fourth quarter, down from 1.49% in 2019’s fourth quarter, but up from the second-quarter low of 0.40%.

Credit Union Margins Remain Under Pressure Posted by AVCU on 5:01 PM

 Credit union earnings will be continue to be depressed over the next two years because of low interest rates and less non-interest income, according to CUNA’s latest forecast.

CUNA’s economic and credit union forecast released Feb. 12 expects the economy to improve much faster than it forecast in November, but it remains pessimistic about credit union margins.

CUNA estimates return on average assets (ROA) for the 12 months ending Dec. 31 was 0.65%, down from 0.93% for 2019. And, it is predicting that ROA will fall to 0.50% both in 2021 and 2022. The forecast is a product of collaboration between economists at CUNA and at CUNA Mutual Group, both of Madison, Wis.

Last year’s ROA “was propped up by fees from significant sales on mortgages and PPP [Payroll Protection Program] loans,” said Jordan van Rijn, CUNA senior economist and the report’s author. “Overall, the very low interest rates and falling loan to share ratio means that credit unions will be forced to place funds in low yielding investments, and newly disbursed loans will receive tiny interest margins.”

However, CUNA has been underestimating credit union earnings. Its current forecast assumes ROA of 0.66% for the fourth quarter of 2020, up from its November forecast of 0.35%.

Callahan & Associates, the credit union company based in Washington, D.C., last week estimated 0.83% ROA for the fourth quarter, up from 0.81% in 2019’s fourth quarter and 0.79% in 2020’s third quarter.

NCUA call reports for the 10 largest credit unions show their fourth-quarter ROA was 1.01%, up from 0.95% in 2019’s fourth quarter and 0.60% in 2020’s third quarter.

Data from the Top 10 credit unions and Callahan show the improvement came from a sharp drop in loan loss provisions and higher non-interest income, particularly from mortgage sales. NCUA’s full set of fourth-quarter data is expected in early March.

For the broader picture, CUNA forecasts a faster economic recovery this year than it had forecast in November.

Last year, Gross Domestic Product (GDP) fell 3.5%, its worst full-year drop since 1946. The unemployment rate fell from its April peak to 6.3% in January, but the pace of recovery slowed significantly over the past few months.

Yet CUNA cited signs of hope in falling COVID-19 cases, rising vaccinations and President Biden’s plan for an additional $1.9 trillion stimulus package that includes expanded unemployment benefits, support for schools and hospitals, and additional direct payments to households.

“For credit unions, the additional stimulus will dramatically increase savings growth and help maintain relatively healthy portfolio quality, and the recovery and low interest rates will support modest loan and membership growth,” van Rijn said. “However, low interest rates will squeeze earnings and the loan to share and net worth ratios will continue to fall.”

Van Rijn said the most significant changes from its previous November forecast include:

• The economy will grow 3.5% in 2021, up from its previous forecast of 2.5%.
• Consumer Price Index inflation will rise 2.1% in 2021, up from its previous estimate of 1.2%.
• The unemployment rate will fall to 5.5% by year’s end, down from its previous forecast of 7%.
• Savings will grow 15% this year, up from its previous 8% forecast, and assets will grow 13.5%, up from its previous 7% estimate. Both revisions are based on the additional stimulus expected this year.
• Credit union portfolio quality is expected to be better than previously anticipated. Delinquency rates will rise only slightly to 0.80% in 2021, down from its previous estimate of 1.10%. Net charge offs will rise to 0.60%, down from its previous forecast of 0.80%.

CUNA’s forecast assumes vaccinations will reach roughly half of the population by the summer, the U.S. will approach herd immunity during the second half of the year, and, “given Democratic control of Congress,” Biden will be able to sign a stimulus plan roughly equal to the one proposed in March or April.

Credit unions can expect continued sluggish growth in loans, and fast growth in savings. As a result, the loan-to-share ratio will fall from 73.6% as of Dec. 31 to 65.6% by the end of this year and 64.4% by the end of 2022.

Total loans were $1.9 trillion as of Dec. 31, up 5% from a year earlier, largely on the strength of mortgages and PPP loans. CUNA expects portfolios will grow another 5% this year and 8% in 2022.

“We expect auto lending to recover and mortgage lending to remain strong,” van Rijn said. “However, headwinds to faster growth include fewer PPP loans and households using stimulus funds and mortgage refinancing to pay down existing debt, such as credit cards.”

Savings grew 20.6% to $1.62 trillion last year. “Stimulus will continue the strong deposit growth at credit unions and CUNA economists anticipate savings growth of 15% for 2021 mostly concentrated in the first and second quarters before falling to 5% in 2022,” he said.

How soon will fee income rebound at credit unions? Posted by AVCU on 8:19 AM

 Credit unions are struggling to set expectations for growth in fee income this year.

Third-quarter data from the National Credit Union Administration, the most recent information available, showed a 9.5% year-over-year increase in noninterest income, compared with 5.5% growth in the year ending Sept. 30, 2019. However, that figure — which includes gains from investments in credit union service organizations and other income sources — masks a substantial decline in fee income, which was down by about 12%. That drop reflects the fact that not all credit unions participated in the Paycheck Protection Program or benefitted from the mortgage refinancing boom, both of which generated fee income. Many consumers also had less need for overdraft protections thanks to stimulus checks and expanded unemployment benefits.

The bigger problem is that it’s not clear where growth will come from in 2021.

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“Some of those gains we saw last year are neither sustainable nor replicable,” said Steve Reider, CEO of the consultancy Bancography.

Many credit union leaders are hoping an economic rebound later in the year contributes to an increase in interchange income. NCUA data doesn’t separate swipe fees from other noninterest income, but it’s clear that consumer spending dropped substantially in the first half of the year before picking back up somewhat in the summer and fall, suppressing interchange income, said Norm Patrick vice president of PSCU’s Advisors Plus consulting division.

Travel, entertainment, restaurants and gasoline remain four of the biggest categories holding back the payments market, said Patrick.

“Those are four very different segments, but if we could get those back into the positive, that’s really going to help make some traction — in particular on the credit card side — with getting back to normal," he said. "But again, as far as timing and to what extent, the jury is still out.”

Ongoing vaccinations will also contribute to a rebound, added Reider, and credit unions could begin to see the effect of that by summer.

“I believe there’s going to be a massive pent-up summer travel kick, and even people who aren’t vaccinated are going to feel a little bit safer,” said Reider. That’s going to lead to the return of family activities like beach vacations and Disney trips, he said. “All of that occurs on credit cards or debit cards.”

On top of that, said Reider, the vast majority of credit unions are under the $10 billion-asset mark, they’ll receive a larger interchange fee than those above $10 billion, as mandated by law.

Until then, some credit unions are hoping the latest round of PPP funding and ongoing mortgage refinancing can keep noninterest income flowing.

Credit unions have only accounted for a small part of overall PPP loan volumes, with recent figures from the Small Business Administration showing the industry accounts for just 15% of lenders and less than 3% of total loan volumes in 2021.

Still, for credit unions that have participated, the program has provided a hefty dose of revenue.

Evergreen Credit Union in Portland, Maine, earned more than $4.5 million in noninterest income last year, according to call report data from the NCUA, a 13% increase over 2019. But Kate Archambault, the $401 million-asset credit union’s chief financial officer, said those figures are, “a little bit misleading, because most of our noninterest income was down, but we did over $9 million in PPP loans, and that’s what made it up for us.”

Evergreen budgeted an 8.5% increase this year on the assumption that interchange revenues return to normal in the second half and mortgage originations slow as rates rise due to an improving economy. The credit union’s forecast does not include PPP loans, however, since the latest round of the program had not been announced when that budget was set.

Notre Dame FCU in Indiana was also heavy into PPP lending last year, which helped boost noninterest revenues substantially, but CEO Tom Gryp said the fees that came from selling mortgages were just as impactful. Fee income was up by 50% last year to over $7.7 million, and the credit union sold nearly $258 million in first mortgages to the secondary market in 2020, compared to just $105 million the year before.

Gryp predicted similar trends for 2021 “but probably off of the 2020 highs, because [PPP] activity is not as robust as the first round and we expect the refinance pool will start shrinking,” he said. “There’s still going to be purchase activity but the rush of people to refinance their homes will go down because people have already refinanced.”

Some suggested that as the economy rebounds and government stimulus efforts abate, credit unions could see an increase in fee income from overdrafts.

“Our [non-sufficient funds] fee income dropped off almost 22% between 2019 and 2020, and budgeting for 2021 we are still below 2019 levels … so I think it’s going to be a two- to five-year time frame for certain fees to come back up,” said Archambault.

With fee income already down, the pandemic could spur credit unions to put an increased focus on other offerings that generate noninterest revenue, such as insurance and wealth management.

“At the top end of the industry you’ve got some pretty sophisticated offerings, but that 10-20 branch, $700 million - $2 billion[-asset] range, they’ve probably got a lot of room to run in that area, even to the extent that they have a fully built-out offering but they haven’t yet really conquered the cross-sell process,” said Reider. “They may have the product side built and even the delivery side, but they haven’t yet really exploited penetrating deeply into their own member base.”

NAFCU & Economist Says Pandemic Relief Needed Now Posted by AVCU on 8:31 AM

 Economist Elliot Eisenberg said Thursday that Congress should act now to provide economic relief not only to help those in need, but also to help the nation from losing momentum in its economic recovery.

The sentiment was echoed Friday by NAFCU chief economist Curt Long following the Bureau of Labor Statistics’ release of reports showing job growth slowing in November, which he said showed “the toll taken by rising COVID cases.”

BLS reported the unemployment rate was 6.7% in November, down from a peak of 14.7% in April, but still higher than the pre-pandemic rate of 3.5% in February. There were 10.7 million Americans unemployed in November, 4.9 million higher than in February.

Total non-farm jobs increased by 245,000 last month, which Long said “is not nearly fast enough given the unemployment overhang.” He also cited declining jobs in retail, restaurants, and government, as well as falling rates for labor force participation.

“This data should provide more impetus for Congress to pass a stimulus effort in order to nurse the recovery through the initial months of 2021 until a vaccine is widely available,” Long said.

Eisenberg cited a medley of positive trends, including improving manufacturing output, rising capital goods orders, healthy returns on assets for banks, higher used car values, a robust housing market and declining unemployment.

He also cited lower loan loss provisions by banks in the third quarter, which he said indicated bank executives had decided they have set aside enough money for now.

While most key trends show improvement, he said the rate of improvement is slowing just as the economy approaches some of its greatest threats, including rising COVID-19 cases and many households reaching a financial crisis.

“The economy has started to run out of gas,” he said during a webinar sponsored by Origence, a division of CU Direct of Irvine, Calif.

The recession set off a surge in savings, and households are now holding about $800 billion to $1.3 trillion in savings with the distribution likely skewed to wealthier households.

Consumer sentiment is wavering with each burst of good and bad news, and about 20 million people are poised to lose unemployment assistance, loan forbearances, protection from eviction or other benefits before the end of the month.

From a “risk management perspective,” he said it would be helpful for Congress to appropriate $800 million to $1 trillion in the next two to three weeks.

“Don’t give checks to everybody. Give it to the people who need it,” he said. “Maybe it’s wasting money, but if it saves us from a double-dip recession, it’s worth it.”

If Congress fails to act, Eisenberg said the odds will rise that the Fed will step in to provide fiscal stimulus through targeted bond buybacks.

The odds of getting a powerful dose of economic stimulus will rise after Biden takes office Jan. 20, but most of the impact will be muted if the Senate remains in Republican hands, which he said appears likely “from everything I read.”

A Darker Q4 May Follow the Brighter Q3 for Credit Unions Posted by AVCU on 8:39 AM

 Credit unions’ net income was much better than expected in the third quarter, despite another round of larger-than-normal loan loss provisions.

However, CUNA chief economist Mike Schenk said Thursday the economic pain is on course to worsen through the rest of the year as COVID-19 infections rise, and more households run short of cash to keep up with their monthly payments in the absence of additional federal relief.

“Big spikes in bankruptcies and charge-offs may occur in the current environment if we don’t see a significant additional fiscal stimulus in the near term,” Schenk said. “Who knows when help is on the way and how much.”

Callahan & Associates on Wednesday reported that credit unions earned $8.3 billion in the nine months ending Sept. 30. Comparing that data with earlier quarters from the NCUA, the data shows credit unions earned about $3.5 billion in the three months ending Sept. 30.

That means credit unions’ net income for the three months ending Sept. 30 was an annualized 0.79% of average assets for the three months ending Sept. 30, down from an ROA of 1.00% in 2019’s third quarter, but a sharp improvement from 0.53% in the first quarter and 0.61% in the second quarter.

The ROA was also far better than the Sept. 9 forecast from CUNA and CUNA Mutual Group of 0.45% for the third quarter.

“In general, the economy performed better than we anticipated in the third quarter,” Schenk said.

The primary reason is that the two Madison, Wis.-based organizations had premised their combined forecast on tighter restrictions to control the spread of COVID-19. But restrictions were looser, with many more businesses reopening and hiring more workers than the economists expected.

“In some respects, we’re paying the price for that,” Schenk said.

With the looser restrictions, COVID-19 cases have soared, with hospitals in some areas nearing capacity.

Another reason is that forecasting teams underestimated the power of the federal fiscal stimulus through rebates, $600 a week in added unemployment benefits and the Paycheck Protection Program.

“It is amazing when you throw $3 trillion at a problem the effects it will have,” he said.

Those effects have been dramatic, and allowed many people to keep up to date on their bills and loan payments, Schenk said.

In fact, CUNA’s estimate for delinquencies was 0.52% as of Sept. 30 — its lowest in the 30 years CUNA has collected those monthly statistics. It was 0.67% in September 2019 and April 2020, and the rates have been falling since. Schenk said part of that reason is that some delinquencies are not being recorded because of forbearances or other accommodations.

Besides additional deaths and suffering, the economic risk now is that as the danger of infection becomes nearer and clearer, people will hunker down and the economy will hunker with them — no matter the presence or absence of health mandates.

“This is going to accelerate now that it’s cold,” he said.

Without additional stimulus, Schenk said more households will fall behind on their monthly payments. Credit union managers are signaling that they expect conditions to worsen by raising their loan loss provisions.

Callahan found credit unions took a combined $2.1 billion in loan loss provisions in the three months ending Sept. 30, down 32% from 2019’s third quarter and slicing about 11 basis points from the quarter’s ROA.

Provisions had been running at about $1.6 billion to $1.7 billion each quarter in 2019, but have climbed steeply since COVID-19 was declared a pandemic March 11. It rose 34% to $2.1 billion in the first quarter and 68% to $2.7 billion in the second quarter.

By raising loan loss provisions, Schenk said credit union managers “are saying they want to be ready for a big spike in charge-offs.”

Provisions are higher for credit unions whose members are disproportionately employed in travel, tourism and restaurant businesses. And, overall, they tend to be highest in the fourth quarter.

Callahan found credit unions originated $188.5 billion in loans in the three months ending Sept. 30, up 23% from 2019’s third quarter, as consumers took advantage of low interest rates, especially for mortgages. Third-quarter originations by segment showed the following:

• First mortgages rose 55% to $82.9 billion.
• Other real estate fell 5% to $9.4 billion.
• Commercial loans rose 18% to $6.9 billion.
• Consumer loans rose 7% to $89.4 billion.

Credit Unions Capture Just 4.8% of COVID Checking Funds Posted by AVCU on 8:20 AM

 COVID-19 drove consumers to deposit money into their financial institution accounts in droves – bringing in about $3.4 trillion to commercial banks, savings banks, fintechs and credit unions since the beginning of the pandemic. And around 30% of those funds went into checking accounts, with credit unions receiving the smallest pile, according to new data from financial institution research firm Moebs $ervices.

According to the Lake Forest, Ill.-based company, commercial banks have received 61.3% of checking account deposits during COVID, followed by savings banks (thrifts) at 26%, other types of depositories (mainly fintech firms) at 7.9% and credit unions at 4.8%. The firm said commercial banks fell short 20% compared to their typical influx of new money, while savings banks and fintechs gained more than their usual shares of new money (which are 13% and 3%, respectively), and credit unions fared the worst.

“Severely concerned about preserving capital – more so than banks – credit unions fell 40% of what they would normally get in new dollars,” Moebs Services CEO and Economist Michael Moebs said. “All depositories won, but savings banks and fintechs exceeded expectations, capitalizing on the influx of COVID money.”

Moebs $ervices also broke down where consumers deposited their money during the COVID-19 pandemic across all financial institutions by account type. Seeing the biggest increase in deposits were interest-bearing checking accounts, with a 67.9% jump; institutional money market mutual funds with a 40% jump; non-interest-bearing checking accounts with a 34.4% increase; IRA and Keogh retirement accounts with an 18.6% increase; savings and share accounts with a 15.6% jump; and retail money market mutual funds with a 13.1% jump.

Certificates of deposit came in last on consumers’ lists of the types of accounts they chose to deposit their COVID funds into, according to the firm. Jumbo CDs received 9.2% fewer deposits than usual, and retail CDs saw a 24.6% drop in deposit dollars. Moebs $ervices noted the popularity of checking accounts was due in part to consumers and businesses wanting easy access to their funds, as well as savings banks and fintechs offering appealing rates.

“Savings banks and fintechs maintained their interest rates at pre-COVID levels before gradually reducing [them],” Moebs said. “As the Federal Reserve quickly dropped Treasury bill and bond rates, banks and credit unions followed in lock step. Savings banks and fintechs were slower to reduce rates, offering their current and new customers higher interest than market prices.”

He continued, “In addition, savings banks and fintechs saw many consumers and small businesses were panic stricken, seeking liquidity and easy access to funds. So, they offered interest checking starting at 0.25% and much higher rates for more funds in higher tiers or tranches. Banks and credit unions on average were 0.05% as the FDIC and Moebs $ervices Rate Surveys showed.”

Economic Update forecasts ‘swoosh-shaped’ recovery Posted by AVCU on 8:17 AM

“The COVID-19 pandemic is unprecedented. It caused an increase in unemployment rate to 14.7%, the highest in decades, and after some adjustment, the BLS actually found the unemployment went up to 20%, the highest since the Great Depression,” van Rijn said. “The good news is that this unemployment rate has fallen considerably since then.”

 CUNA’s latest Economic Update video features Senior Economic Jordan van Rijn examining the latest on the economy, what to expect from the recovery, how long the recovery might take, updated credit union operations forecast and more. The video and presentation are available here.

van Rijn did note that around 250,000 of the new jobs are temporary census workers hired for this year, and that many of the remaining unemployed will likely remain permanent.

CUNA economists estimated unemployment would be at 7.5% end of this year and 6.5% end of 2021

“A lot of people thought we’d more of a V-shaped recovery, go into temporary lock down, get the pandemic under control and then basically open everything up again ang maybe a year later get the jobs back,” van Rijn said. “Now I think we’re looking at a sort of ‘Nike swoosh’ shaped recovery, with a big downturn and then a steady increase over the next couple pf years.

“The bad news is we’re going to be in this for a while with elevated unemployment rates, business closures and people out of work,” he added. “The good news is that if this holds true, it would be faster than the recovery from the Great Recession.”

Credit unions have seen low mortgage delinquencies thus far in 2020, partly due to the fact they’re working with members on payment relief, but van Rijn notes that as these programs begin to expire and months go on, the delinquencies could rise.

Prior to 2020, credit cards were growing at 6-7% per year, but the first 6 months of this year fell 8%, van Rijn said.  Other unsecured loans are up 12% for first 6 months of this year, likely due to credit unions working to provide different loans during the pandemic like emergency loans; Paycheck Protection Program loans also fall into this category.

“New auto loans were on a downward trend before, they’re down 4% this year, while used auto loans up 2.3%, which would be 4.6% annualized growth, stronger than last year,” he said. “First mortgages have grown around 5.9% over the first six months, annualized that would be 12%, the strongest growth in six or seven years.”

First mortgages account for 70% of loan growth this year, which CUNA estimates will be about 6%.

Treasury, IRS offer clarification on employment tax deferral ordered by President Trump Posted by AVCU on 8:15 AM

 The Treasury Department and the Internal Revenue Service (IRS) Friday released guidance to clarify the implementation of an executive order allowing employers to defer withholding and payment of an employee's portion of the payroll tax if the employee's wages were below a certain amount. The executive order was issued by President Donald Trump Aug. 8.

The Treasury and IRS clarified that this deferment applies to wages paid starting Sept. 1 through Dec. 31, 2020. The due date for withholding and payment of the tax is postponed until Jan. 1, 2021; all withheld taxes are still required to be paid on time in 2021.

In addition, the deferral of the employee payroll tax may apply to payments of taxable wages to an employee that are less than $4,000 during a bi-weekly pay period, with each pay period considered separately.

No deferral is available for any payment of taxable wages of $4,000 or above for a bi-weekly pay period, the guidance states.

For more information on this topic, NAFCU Vice President of Regulatory Compliance Brandy Bruyere tackled the Presidential Memorandum in a recent Compliance Blog post. An upcoming blog post will further review the new guidance.

NAFCU will continue to monitor tax relief related to the coronavirus pandemic and alert credit unions of updated guidance as it is released.

Visit the IRS website for additional information on available pandemic-related tax relief.

NEACH Seeks Nominations for Board Posted by Association of Vermont Credit Unions on 10:06 AM

The New England ACH Association (NEACH) is seeking qualified candidates to serve on its Board of Directors.  All candidates must hold an officer position at a NEACH-member financial institution. Board members are elected for two-year terms. The Board seeks gender, racial, and geographic
diversity and officers of member financial institutions committed to helping NEACH achieve its
mission of providing strategic and operational support to its members. Additionally, the Board
endeavors to expand the expertise and perspectives represented on the Board. Candidates
should have an understanding of NEACH’s mission and the work NEACH does to improve the
payments landscape.

Interested candidates are encouraged to review the Board Responsibilities and to complete the
nomination form and questionnaire. We also ask that interested candidates complete a short
skills assessment and demographic survey.  Nominations for positions on the NEACH Board of Directors will be accepted through July 31, 2020. Completed documentation can be sent to Nicole Beck-Dowd at nbeckdown@neach.org .

Members of NEACH's 17 member board include Steve Roy, President of Tricorp FCU, and the lone Vermont board member is Caroline Carpenter, President of National Bank of Middlebury.

April MCUEs show COVID-19 impact on savings, loan demand Posted by AVCU on 8:02 AM

CUNA’s April Monthly Credit Union Estimates (MCUEs) provides a first comprehensive look at impacts the COVID-19 crisis is having on U.S. credit unions. While the effects are significant, they are in line with CUNA economists’ expectations and credit unions remain well-positioned to continue to serve members in the downturn.

The MCUE report reflects credit union operating results for the first full month of the crisis (April).  These include challenges wrought by immense fiscal and monetary policy responses.

The data shows massive growth in credit union savings balances – due mostly to a flood of government stimulus deposits which greatly magnified normal seasonal savings inflows, CUNA Chief Economist Mike Schenk notes.

Overall, credit union savings balances grew 4.7% in April, an astonishing 56% annualized pace and the largest one-month increase in the 30+ years that CUNA has collected MCUE data.

“The increases occurred against a backdrop of rising equity prices – which staged a 13% rally during the month,” Schenk said.

Overall, savings balances increased 7.0% during the first four months of the year and 13.8% over the past 12 months.

Credit union members continued to keep savings short and liquid with share drafts and regular shares accounting for 93% of total savings growth in the month.

“While savings balances ballooned, anxiety related to the fast-spreading pandemic and a shocking wave of over 30 million job losses had most members hunkered down,” Schenk said. “Beyond stockpiling necessities, consumers were generally reluctant to spend or borrow: Overall, credit union loan balances were up only 0.1% in the month (an annualized pace of just 1.2%).”

Loans increased 1.0% during the first four months of the year and 6.8% over the year ending April 2020.

Loan balances declined across all but two portfolio segments in April:

• Low market interest rates continued to fuel mortgage re-financings and fixed-rate mortgages increased 1.2% in the month (a 14.2% annualized pace);
• In addition, the SBA’s $349 billion Paycheck Protection Program (PPP) rolled out April 3 and credit unions stepped in to help small businesses across the nation - reflected in the fact that commercial loans increased an astonishing 5.2% in the month (a 62% annualized pace). 

“Fast savings growth and weak loan growth pushed the credit union movement’s loan-to-share ratio down from 84.4% at the start of the year to a three-year low of 78.1%,” Schenk said. “No four-month period in MCUE’s 30-year history reflects a decline as severe as this 6.3 percentage point slide. Of course, declining loan-to-share ratios are typically associated with falling net interest margins and more challenging bottom-line results.”

Dollar delinquency as a percent of loans increased modestly – from 0.59% in April 2019 to 0.69% in April 2020. However, total dollar delinquencies increased by 10% in April and by 23% compared to year-ago levels.

Fast asset growth and more obvious earnings pressures combined to push the aggregate credit union capital-to-asset ratio down from 11.2% at the start of the year to 10.7% at the end of April.

The 0.5% decline is the most severe since the Great Recession, but overall capitalization levels are substantially higher than the 7.0% level seen as “well capitalized” by credit union regulators,” Schenk said. “Credit unions remain well-positioned to continue to serve members in the downturn.”

For more information on economic and credit union financial expectations over the next 18 months look to the CUNA Economic and Credit Union Forecast posted on CUNA’s web site at cuna.org/economics.

Economic Update examines COVID-19 impact on CU members Posted by AVCU on 8:20 AM

CUNA’s latest Economic Update video addresses the impact of the coronavirus disease (COVID-19) pandemic on consumer financial well-being and credit unions’ response.

During the presentation, CUNA Senior Policy Analyst Samira Salem discusses recent Morning Consult and CUNA/American Association of Credit Union League survey findings.

The Morning Consult survey results include information on the following:

• How have consumers been financially impacted by the pandemic?
• How are adult consumers coping financially?
• What kinds of support would they find most helpful at this time?

Salem also looks at the results to date of an ongoing CUNA/American Association of Credit Union Leagues survey on how credit unions are responding to support their members’ financial well-being during the pandemic. She finds that credit unions’ pandemic responses line up with consumer financial needs identified in the Morning Consult survey. These include:

• 95% of credit unions surveyed are offering modifications to existing loans, including loan extensions (skip-a-payment), line of credit increases, interest-only loan repayment, reduced or no-interest loans;
• 80% of credit unions are offering new loan products, including deferred payment, reduced or no-interest, reduced or no-interest payroll advance
• 85% of credit unions are waiving and reducing fees to ease the burden on members, including waiving early withdrawal penalty on CDs, waiving skip-a-payment fees, waiving overdraft fees, waiving loan application fees and other waivers
• 64% of credit unions are offering financial counseling, debt consolidation or other services, including financial counseling (39%), debt consolidation (36%) and credit protection (23%);
• Credit unions originated billions of dollars in SBA PPP loans with an average loan size of $65,000;
• Most credit unions are providing some support to their employees, including childcare programs, employee assistance programs and paid leave for employees who have or have a family member with COVID-19

The complete presentation can be found below.