NCUA updates CECL Tool Posted by AVCU on 1:15 PM

 The NCUA released updates to its Simplified Current Expected Credit Losses (CECL) Tool. The updates reflect the average loan loss rates for 2021-2023 and the latest life-of-loan —or Weighted Average Remaining Maturity—factors. 

The agency noted that the updates will help credit unions determine the credit loss expense for the first quarter of 2024. It also said the tool helps credit unions with assets under $10 million more accurately measure credit losses and get stronger feedback on loan portfolio management. 

Access the agency’s CECL Resources page for more on CECL. 

FFIEC Announces Availability of 2022 Data on Mortgage Lending Posted by AVCU on 4:17 PM

 WASHINGTON, D.C. (June 29, 2023) – The Federal Financial Institutions Examination Council (FFIEC) today announced the availability of data on 2022 mortgage lending transactions reported under the Home Mortgage Disclosure Act (HMDA) by 4,460 U.S. financial institutions, including banks, savings associations, credit unions, and mortgage companies.

The HMDA data are the most comprehensive publicly available information on mortgage market activity. The data are used by industry, consumer groups, regulators, and others to assess potential fair lending risks and for other regulatory and informational purposes. The data help the public assess how financial institutions are serving the housing needs of their local communities and facilitate federal financial regulators’ fair lending, consumer compliance, and Community Reinvestment Act examinations.

The Snapshot National Loan-Level Dataset released today contains the national HMDA datasets as of May 1, 2023. Key observations from the Snapshot include the following:

• For 2022, the number of reporting institutions increased by about 2.63 percent from 4,338 in the previous year to 4,460.
• The 2022 data include information on 14.3 million home loan applications. Among them, 11.5 million were closed-end and 2.5 million were open-end. Another 287,000 records are from financial institutions making use of Economic Growth, Regulatory Relief, and Consumer Protection Act’s partial exemptions and did not indicate whether the records were closed-end or open-end.
• The share of mortgages originated by non-depository, independent mortgage companies has decreased and, in 2022, accounted for 60.2 percent of first lien, one- to four-family, site-built, owner-occupied home-purchase loans, down from 63.9 percent in 2021.
• In terms of borrower race and ethnicity, the share of closed-end home purchase loans for first lien, one- to four-family, site-built, owner-occupied properties made to Black or African American borrowers rose from 7.9 percent in 2021 to 8.1 percent in 2022, the share made to Hispanic-White borrowers decreased slightly from 9.2 percent to 9.1 percent, and those made to Asian borrowers increased from 7.1 percent to 7.6 percent.
• In 2022, Black or African American and Hispanic-White applicants experienced denial rates for first lien, one- to four-family, site-built, owner-occupied conventional, closed-end home purchase loans of 16.4 percent and 11.1 percent respectively, while the denial rates for Asian and non-Hispanic-White applicants were 9.2 percent and 5.8 percent respectively.

The FFIEC also released today several other data products to serve a variety of data users. The HMDA Dynamic National Loan-Level Dataset is updated on a weekly basis to reflect late submissions and resubmissions. Aggregate and Disclosure Reports provide summary information on individual financial institutions and geographies. The HMDA Data Browser allows users to create custom tables and download datasets that can be further analyzed. In addition, in mid-March 2023, the FFIEC made available Loan/Application Registers for each HMDA filer of 2022 data, as well as a combined file for all filers, modified to protect borrower privacy. Additional observations regarding the 2022 data may be found here.

3 Steps to Prepare Your Culture for AI Posted by AVCU on 3:04 PM

 According to Jared  Spataro from Microsoft, As business leaders, today we find ourselves in a place that’s all too familiar: the unfamiliar. Just as we steered our teams through the shift to remote and flexible work, we’re now on the verge of another seismic shift: AI. And like the shift to flexible work, priming an organization to embrace AI will hinge first and foremost on culture.

The pace and volume of work has increased exponentially, and we’re all struggling under the weight of it. Leaders and employees are eager for AI to lift the burden. That’s the key takeaway from our 2023 Work Trend Index, which surveyed 31,000 people across 31 countries and analyzed trillions of aggregated productivity signals in Microsoft 365, along with labor market trends on LinkedIn.

Nearly two-thirds of employees surveyed told us they don’t have enough time or energy to do their job. The cause of this drain is something we identified in the report as digital debt: the influx of data, emails, and chats has outpaced our ability to keep up. Employees today spend nearly 60% of their time communicating, leaving only 40% of their time for creating and innovating. In a world where creativity is the new productivity, digital debt isn’t just an inconvenience — it’s a liability.

AI promises to address that liability by allowing employees to focus on the most meaningful work. Increasing productivity, streamlining repetitive tasks, and increasing employee well-being are the top three things leaders want from AI, according to our research. Notably, amid fears that AI will replace jobs, reducing headcount was last on the list.

Becoming an AI-powered organization will require us to work in entirely new ways. As leaders, there are three steps we can take today to get our cultures ready for an AI-powered future:

Choose curiosity over fear

AI marks a new interaction model between humans and computers. Until now, the way we’ve interacted with computers has been similar to how we interact with a calculator: We ask a question or give directions, and the computer provides an answer. But with AI, the computer will be more like a copilot. We’ll need to develop a new kind of chemistry together, learning when and how to ask questions and about the importance of fact-checking responses.

Fear is a natural reaction to change, so it’s understandable for employees to feel some uncertainty about what AI will mean for their work. Our research found that while 49% of employees are concerned AI will replace their jobs, the promise of AI outweighs the threat: 70% of employees are more than willing to delegate to AI to lighten their workloads.

We’re rarely served by operating from a place of fear. By fostering a culture of curiosity, we can empower our people to understand how AI works, including its capabilities and its shortcomings. This understanding starts with firsthand experience. Encourage employees to put curiosity into action by experimenting (safely and securely) with new AI tools, such as AI-powered search, intelligent writing assistance, or smart calendaring, to name just a few. Since every role and function will have different ways to use and benefit from AI, challenge them to rethink how AI could improve or transform processes as they get familiar with the tools. From there, employees can begin to unlock new ways of working.

Embrace failure

AI will change nearly every job, and nearly every work pattern can benefit from some degree of AI augmentation or automation. As leaders, now is the time to encourage our teams to bring creativity to reimagining work, adopting a test-and-learn strategy to find ways AI can best help meet the needs of the business.

AI won’t get it right every time, but even when it’s wrong, it’s usefully wrong. It moves you at least one step forward from a blank slate, so you can jump right into the critical thinking work of reviewing, editing, or augmenting. It will take time to learn these new patterns of work and identify which processes need to change and how. But if we create a culture where experimentation and learning are viewed as a prerequisite to progress, we’ll get there much faster.

As leaders, we have a responsibility to create the right environment for failure so that our people are empowered to experiment to uncover how AI can fit into their workflows. In my experience, that includes celebrating wins as well as sharing lessons learned in order to help keep each other from wasting time learning the same lesson twice. Both formally and informally, carve out space for people to share knowledge — for example, by crowdsourcing a prompt guidebook within your department or making AI tips a standing agenda item in your monthly all-staff meetings. Operating with agility will be a foundational tenet of AI-powered organizations.

Become a learn-it-all

I often hear concerns that AI will be a crutch, offering shortcuts and workarounds that ultimately diminish innovation and engagement. In my mind, the potential for AI is so much bigger than that, and it will become a competitive advantage for those who use it thoughtfully. Those will become your most engaged and innovative employees.

The value you get from AI is only as good as what you put in. Simple questions will result in simple answers. But sophisticated, thought-provoking questions will result in more complex analysis and bigger ideas. The value will shift from employees who have all the right answers to employees who know how to ask the right questions. Organizations of the future will place a premium on analytical thinkers and problem-solvers who can effectively reason over AI-generated content.

At Microsoft, we believe a learn-it-all mentality will get us much farther than a know-it-all one. And while the learning curve of using AI can be daunting, it’s a muscle that has to be built over time — and that we should start strengthening today. When I talk to leaders about how to achieve this across their companies and teams, I tell them three things:

• Establish guardrails to help people experiment safely and responsibly. Which tools do you encourage employees to use, and what data is — and isn’t — appropriate to input. What guidelines do they need to follow around fact-checking, reviewing, and editing?
• Learning to work with AI will need to be a continuous process, not a one-time training. Infuse learning opportunities into your rhythm of business and keep employees up to date with the latest resources. For example, one team might block off Friday afternoons for learning, while another has monthly “office hours” for AI Q&A and troubleshooting. And think beyond traditional courses or resources. How can peer-to-peer knowledge sharing, such as lunch and learns or a digital hotline, play a role so people can learn from each other?
• Embrace the need for change management. Being intentional and programmatic will be crucial for successfully adopting AI. Identify goals and metrics for success, and select AI champions or pilot program leads to help bring the vision to life. Different functions and disciplines will have different needs and challenges when it comes to AI, but one shared need will be for structure and support as we all transition to a new way of working.

The platform shift to AI is well underway. And while it holds the promise of transforming work and giving organizations a competitive advantage, realizing those benefits isn’t possible without a culture that embraces curiosity, failure, and learning. As leaders, we’re uniquely positioned to foster this culture within our organizations today in order to set our teams up for success in the future. When paired with the capabilities of AI, this kind of culture will unlock a better future of work for everyone.

Welch, Durbin, Marshall, and Vance introduce bipartisan Credit Card Competition Act of 2023 Posted by AVCU on 10:36 AM

 Bill would enhance competition and choice in the credit card network market currently dominated by the Visa-Mastercard duopoly

VermontBiz Senator Peter Welch (D-VT), Senate Majority Whip Dick Durbin (D-IL), and Senators Roger Marshall, M.D. (R-KS), and J.D. Vance (R-OH) today introduced the bipartisan, bicameral Credit Card Competition Act of 2023, legislation that would enhance competition and choice in the credit card network market which is currently dominated by the Visa-Mastercard duopoly.  Building on debit card competition reforms enacted by Congress in 2010, the bill would direct the Federal Reserve to ensure that large credit card-issuing banks offer a choice of at least two networks over which an electronic credit transaction may be processed.  Companion legislation was introduced in the House by Representatives Lance Gooden (R-TX-05) and Zoe Lofgren (D-CA-18).  

“Interchange fees put a brutal strain on our small businesses, but because of the Visa-Mastercard duopoly in the credit card network market, Main Street businesses have no choice but to pay these crushing fees or risk going under,” said Welch.  “The Credit Card Competition Act will restore choice and competition in the credit card network market, helping to bring down costs for small businesses and making it easier for these essential businesses to thrive.” 

“Credit card swipe fees inflate the prices that consumers pay for everyday purchases like groceries and gas.  It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly,” said Durbin.  “This legislation, which builds upon pro-competition reforms Congress enacted in 2010, would give small businesses a meaningful choice when it comes to card networks, and it would enable innovators to gain a foothold in the credit card market.  Bringing real competition to credit card networks will help reduce swipe fees and hold down costs for Main Street merchants and their customers.”   

“When it comes to Main Street vs. Wall Street, I’ll stand with Main Street businesses, who are the backbone of our economy, every single time,” said Marshall.  “At a time of economic uncertainty and skyrocketing inflation, these credit card companies are increasing their hidden swipe fees and price gouging small businesses and consumers.  Our legislation would rein in the big banks and the credit card industry, drive down costs for convenience stores, gas stations, and other small businesses, and ultimately pass those savings down to consumers.  This legislation is the right thing to do, and I am proud to reintroduce it with bicameral and bipartisan support.” 

“Due to a lack of competition, credit card companies have been able to exponentially increase hidden processing fees over the last decade.  These fees are most retailers’ highest business expense after labor and rent.  By requiring more than one network option on credit cards, the Credit Card Competition Act would foster competition and transparency in the credit card market so that card networks would have to compete for business on fees and terms – just as we compete for our customers’ business,” Leslie G. Sarasin, President and CEO, FMI – The Food Industry Association. 

There are currently four U.S. credit card networks: Visa, Mastercard, American Express, and Discover.  Visa and Mastercard are known as “four-party” networks; they act as agents for thousands of card-issuing banks and mandate the fees and terms that the banks receive from merchants for each transaction.  Merchants have limited leverage to negotiate fee rates and terms in four-party network systems, because they cannot risk losing access to the consumers served by Visa’s and Mastercard’s member banks.   

The market power and network structure of the Visa-Mastercard duopoly has enabled them to impose fees on U.S. merchants that are among the world’s highest, charging a total of $93 billion in U.S. merchant credit card fees in 2022.   These fees include interchange or swipe fees which Visa and Mastercard require merchants to pay to issuing banks, as well as network fees that Visa and Mastercard require merchants to pay directly to them.  Consumers ultimately pay for these fees in the price of the goods and services they buy. 

Under the Credit Card Competition Act, the Federal Reserve would issue regulations, to ensure that banks in four-party card systems that have assets of over $100 billion cannot restrict the number of networks on which an electronic credit transaction may be processed to less than two unaffiliated networks, at least one of which must be outside of the top two largest networks.  This would inject real competition into the credit card market—opening the door for new market entrants such as current debit-only networks, encouraging innovation and enhanced security, creating backup options if a network crashes, and exerting competitive constraints on Visa and Mastercard’s fee rates. 

The Credit Card Competition Act is supported by organizations including the American Beverage Licensees, Armed Forces Marketing Council, Energy Marketers of America, FMI, Hispanic Leadership Fund, International Franchise Association, National Association of College Stores, National Association of Convenience Stores, National Association of Theater Owners, National Grocers Association, National Restaurant Association, National Retail Federation, National Wildlife Refuge Association, NATSO, NFIB, Retail Industry Leaders Association, SIGMA, U.S. PIRG, and over 200 state and regional business associations.  

**Recently re-introduced legislation would change the current credit card interchange system, making our current payments system less secure and hurting consumers. Tell your lawmakers to oppose changes to the current interchange system. Send a Message to Your Lawmaker here

A one-pager of the bill can be found here.   

New NCUA plan would add millions of credit union members Posted by AVCU on 10:51 AM

 The National Credit Union Administration approved a plan that would expand credit union access to millions more Americans by allowing remote workers to qualify for membership based on their employer's market. 

The agency said the "paid from" proposal and other changes to its chartering and field-of-membership regulations would bring federal charters more in line with state charters. The agency has also proposed allowing more of a deceased credit union member's surviving family members to qualify for membership, and added a simplified application process for de novo community credit unions.

At the board's monthly meeting Thursday, NCUA Chairman Todd Harper said the current federal charter "lags significantly" behind the state charter, and 91 of the 100 largest potential fields of membership in the system are state charters. Roughly 3.3 million more people would be eligible to join a credit union under this proposal, Harper said. 

"Ultimately, it's Congress's decision whether to amend the Federal Credit Union Act's field-of-membership requirements to achieve greater parity with the rules in many states," Harper said. "However, where we can within our existing rules and the law's current requirements, the NCUA board should take appropriate and tailored action to simplify, streamline and strengthen federal chartering options."

But Robert Flock, vice president in the office of strategic engagement for the American Bankers Association, said regardless of the NCUA's intentions, this proposed rule blurs the distinction between credit unions and banks. 

"Further relaxing field-of-membership requirements renders the common bond that ties credit union members together meaningless," Flock said. "And without that common bond, credit unions are indistinguishable from tax-paying community banks, which are also committed to expanding access to financial services in underserved and low-income communities."

The NCUA's proposal would also simplify the application requirements for community-based credit unions by providing a standard form for business and marketing plans. The proposal would also expand the community-based field-of-membership affinities — relationships between a person and their geographic market — to recognize the growth of telecommuting.

"So instead of live, work or worship, the rule would include 'paid from,' so that if I worked for a company that was based in Boston, but I lived in Vermont and worked remotely, I could join that Boston-based community credit union," said Mark Treichel, a former NCUA executive director who now runs Credit Union Exam Solutions.

It is hard to estimate the reach of the changes, but that particular addition to community charters is "material" and will become more important over time, Treichel said.

Sam Brownell, founder of the consultancy CU Collaborate, agreed that aspect of the rule could have the biggest impact on consumers and credit unions.

"That would be a huge win for consumers' access to credit unions and allow more credit unions to provide their services to communities that banks seem to be leaving," Brownell said. 

In another loosening of membership restrictions, the NCUA proposed allowing everyone in the immediate family or household of a credit union member who dies to join the credit union in the six months following that person's death. Under the current rule, only the spouse of a member who dies is eligible for membership.

"This is a very thoughtful change, as it would allow loved ones to maintain a relationship with a credit union that they may only discover when death of a loved one results in a wind-down of affairs at the credit union," Treichel said.

The proposed changes to address the survivorship issue is a "compassionate move" to ensure no credit union member's family has unnecessary burdens to manage when a loved one passes away, said Dan Berger, president and CEO of the National Association of Federally-Insured Credit Unions.

To ease a backlog in field-of-membership applications, the NCUA has also asked to implement a template for this process. The proposal includes a technical clarification on the process for the NCUA to review and approve a new charter as well as the new organization's management and officials.

NCUA Vice Chairman Kyle Hauptman said the chartering process is one of his main three priorities, and so he is in favor of policies that make it more likely that a community or group can charter a new, viable credit union.

"Anything that clarifies field of membership also clarifies things for groups seeking a de novo charter," Hauptman said.

Jason Stverak, deputy chief advocacy officer for the Credit Union National Association, said that getting credit union services to more communities across the country is important to CUNA, state leagues and credit unions. He added that CUNA needs to review the proposal in detail. 

The unanimous vote on Thursday allows for a 90-day comment period to begin once agency officials publish the rule in the Federal Register.

NCUA board member Rodney Hood called the proposal a step in the right direction.

"But we have much more to build upon in this rule and from previous field of membership rulemakings," Hood said.

Ken McCarthy-Reporter, Credit Union Journal

Learning from nature — translating the science and art of murmurations into corporate culture Posted by AVCU on 10:36 AM

Growing up in the Midwest, I often found myself a spectator to one of nature's most unique and beautiful encounters — the murmuration of a flock of birds. From far away, you'd see one flock in cohesive movement, creating swells and ripples as they flew. 

The real beauty of a murmuration, however, is in the science that happens inside the flock.

It’s not about following a lead duck, instead they coordinate by observing the birds around them and making the adjustments needed to keep the flock together. A sense of safety is present when so many eyes can watch for danger. The birds' synchronized movement warms the group in the cold winter months and attracts more birds to join in their flight. 

As I reminisced on this nostalgia, it came to mind that our company values reflect the science behind a murmuration because the murmuration's purpose is to foster the well-being of the flock. Ultimately, a company's core values should do the same for its employees.

***

'Many times, I've asked the question, "What makes me show up to work every day?" My answer shifts, but it always centers around those I work with. Zest AI has proven to me that belonging doesn't fall on an individual but instead is the work of a group to always advocate for greater inclusion. This culture is made possible when employees see their company and decision-makers living out the cultural values daily.

Our five core values of Heart, Collaboration, Bias-for-action, Communication, and Customer-centricity have created a safety net for our employees and encouraged the desire for a deeper understanding of ourselves, each other, and the world around us.

This company functions much like a murmuration. If you follow my simile, in our flock, we move in tandem, allowing space for each other's individual expression and growth while also recognizing that we all must grow together to remain whole. So we watch out for each other. We find harmony within the shifts and movements of our company. No one is left alone, and everyone authentically fits — we accept every kind of bird here! No need for a peacock to dress its plumage as a pelican or a starling as a bluejay. 

We can learn a lot from nature. We can see how to care for each other and extend protection as a community. We can find ways to promote each other's wellness by offering a soft place to land. We see that by working as a unit, we can create harmony and beauty in the world around us. 

Join us on March 8, 2023, from 11:30 AM to 12:30 PM as you find out how credit unions are leveraging AI to increase approval and automation in underwriting, member acquisition, and compliance related to DEI and CDFI initiatives.

Sign up today

 

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How & Why Credit Unions Are Outpacing the Market With Vehicle Leasing Posted by AVCU on 2:28 PM

 Of all the change and uncertainty we’ve been through as an industry, one thing has held true throughout: It’s all about the payment. Sounds simple, right? And maybe even a bit obvious. After all, many people are no longer as interested in owning as they used to be. Renting and subscribing are more the order of the day. According to the Global Banking and Finance Review, 70% of business leaders say subscription business models will be key to their prospects in the coming years. According to Zion Market Research, the subscription and billing management market was valued at $3.8 billion in 2018 – and is expected to reach $10.5 billion by 2025. And while we can all agree on the importance of “the payment,” this desire is actively changing consumer financing preferences in surprising ways, while limiting their options. Market forces are putting pressure on buyers. Prices are too high – and inventories still so low.

Supply chain issues forming in 2020 and 2021 have caused OEMs and captive finance companies to actively pull back and in many cases eliminate incentives.

Shocker!

And, it’s not just rebates. Low interest rates and subverted residual values are scarce as well. And it makes perfect sense: Why would captive financial institutions offer incentives when the vehicles that dealers have are selling fast – and at full retail? They don’t need incentives.

Here’s a pretty typical captive finance scenario playing out on dealership lots: A customer coming to the end of his/her lease gets to choose between another lease for a similar vehicle – and hundreds more per month – or a 72-month loan for an even higher monthly payment. Excluding some cars, leasing for 39 months compared to a loan for six years can still be approximately $100 less per month. But that’s the best of two bad captive choices, and a scenario that leaves the dealer without any good options.

The result is sticker shock and a rethinking of options. Consider, for example, that pre-pandemic leasing was almost 30% of the new car market. In some states, it was over 60%. According to the most recent Experian Automotive Report, in Q2 of 2022, overall vehicle lease penetration dropped to just under 20%. All of which makes it appear as though leasing is unattractive and costly.

Blame the pandemic. Or, more accurately, blame the inventory shortages that were at least partially caused by the pandemic. The point is that captive finance companies aren’t pushing leasing as much as they did before because natural demand is stronger. As a result, this important payment option for consumers seems to have vanished.

But dig a little deeper, beyond the captives, and you can find gold.

Credit unions that participate in leasing are up nearly 50% because affordable leasing gives shoppers the power of more payment flexibility, while also keeping their vehicle under warranty. It’s an opportunity born from the alignment between high interest rates, the absence of incentives, and the high price of vehicles – an opportunity your members (and all consumers) have noticed. At nearly 26%, credit unions are experiencing their highest overall share of the auto finance market in five years – a percent of share that’s just 2% below banks.

Here’s a real-world example: According to John Hendricks, senior vice president of lending at the $979 million St. Mary’s Credit Union in Marlborough, Mass., they were not only able to provide members with a car buying alternative, but also effectively grow an auto portfolio at a rate they hadn’t seen in some time. Hendricks said: “With the price of cars continuing to increase, leasing is becoming more prevalent and is now a necessary tool for credit unions to remain competitive in the indirect space.”

It’s true that captives will always lead new vehicle financing, but credit unions are making important headway: Credit union leasing is proving to be a strong antidote for the inflation flu. It also serves as a balancing force that counters the heavy volume of indirect used vehicle business. It’s not uncommon to hear about a credit union that enjoys a record-breaking month in its indirect financing, only to learn that it’s 75% used. Leasing, as a predominately new vehicle option, helps to balance the plethora of used vehicle financing with the best kind of customer: One that learns to appreciate the local nature of customer service excellence of credit unions and has a reason to come back for their next loan … every three years.

In a volatile rate environment, with economic pressures weighing down on members, leasing is a short term, low risk, strong yield option that gives members more payment flexibility and credit unions returning business. That might seem simple – but it also sounds like a very successful strategy.

--Mark Chandler is Vice President, Business Development for CULA in San Diego.

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.

World Council to Host Free "EMPOWER" Webinar on ICU Day Posted by AVCU on 1:28 PM

 

The theme for International Credit Union Day 2022 is "Empower Your Financial Future with a Credit Union." To celebrate ICU Day on Thursday, October 20th, World Council of Credit Unions is hosting a virtual event featuring panelists from credit unions around the world who will discuss different ways they have empowered the financial futures of their members and employees (click the link to register for the webinar).

Participants will hear stories of empowerment from Ireland, Ukraine, and Peru—along with a description of how Worldwide Foundation for Credit Unions is joining forces with True Sky Credit Union from the United States to raise US $500,000 as part of its “EMPOWER” campaign to further credit union member empowerment moving forward.

This webinar will feature the following panelists:

• Mike Reuter, Executive Director, Worldwide Foundation for Credit Unions
• Sean Cahill, CEO, TrueSky Credit Union (United States)
• Billy Doyle, CEO, Dundalk Credit Union (Ireland)
• Viacheslav Vitiuk, CEO, Credit Union PVKS (Ukraine)
• Hector Farro, Deputy Manager, FINANSOL (Peru)
• Pedro Pablo Martinez, Commercial Advisor, FINANSOL (Peru)
  

The webinar will include translation in the Spanish and Ukrainian languages. If you have questions about the webinar, contact Greg Neumann, World Council Director of Communications, at gneumann@woccu.org or +1 608-395-2048.

Credit unions gain larger share of auto loans as banks lose momentum Posted by AVCU on 11:47 AM

 A surge in auto lending in the second quarter has given U.S. credit unions their biggest slice of the vehicle lending pie in the past five years. 

Recent data from the National Credit Union Administration showed that auto loans increased $58.7 billion, or 15.1% year over year, to $447.6 billion. Used-auto loans rose $43.2 billion, or 17.4%, to $291.0 billion, and new-auto loans rose $15.5 billion, or 11.0%, to $156.5 billion.

Experian’s State of the Automotive Finance Market report for the second quarter of 2022 shows that credit unions now have their highest total share of the auto lending market since 2017, at nearly 26%. A year ago that figure was just above 18%.

The secret to their success is offering low rates and underpricing the market, said John Toohig, head of whole loan trading at Raymond James.

“We’re in this really weird spot right now where [credit unions] have a lot of cash on hand and they’ve been using it to make loans at ultra-low rates,” Toohig said. “We’re still seeing them make 1%, 2% or 3% auto loans whereas the rest of the market is at 5.5% or 6.5%.”

For Pathways Financial in Columbus, the average auto loan has risen $2,775 year over year, which represents an 11.7% increase in average loans outstanding.

And that increase in auto lending may be coming at the expense of banks. Growth in lending to consumers buying cars and trucks decelerated to half the pace of the prior three months for U.S. banks in the second quarter.

Experian said banks’ share of the market fell from 30.3% a year ago to 27.9% in 2022. The remainder of the market is owned by the auto companies themselves, as well as fintechs.

One of the credit unions seeing increased auto loan demand is Truliant Federal Credit Union, a $4 billion-asset lender in Winston-Salem, North Carolina. Truliant had $1.1 billion in auto loans at the end of the second quarter, up from roughly $1 billion at the same point last year, plus another $620 million in indirect auto loans. 

Chris Murray, Truliant’s chief member experience officer, said auto loan demand has been strong, particularly through the indirect lending channel, which are made through a dealership rather than through the lender’s direct channels. 

“And we expect it to remain strong,” Murray said. “We are leveraging our strength in indirect [lending] and making investments in technology, processes and people in order to scale up our capabilities to generate more loans through the channel.” 

Most of the new business has been in used-auto loans, and Murray said funding loans fast is crucial when dealing with independent used-car dealerships. 

“They rely on our fast funding, especially in today’s market where they have to compete heavily to get inventory at auction. Cash is king for them; the faster they get funded, the faster they can get the next car on the lot to sell,” Murray said. 

And volumes have not slowed despite Truliant steadily raising rates. 

Other credit unions will have to pump the brakes on auto lending soon, asin some cases they have nearly a negative net interest margin on auto loans, Toohig said. “They’re going to have to raise their rates first just to slow down lending but also to take a look at the profitability of the portfolio,” he said.

Curtis Onofri, chief lending officer at Pathways Financial Credit Union, a $592 million-asset lender in Columbus, Ohio, said auto-lending growth has been fueled both by new purchases and refinancing.

There are several factors at work causing the rapid growth in auto lending — including increased prices, strong marketing, trailing rate increases and better inventory, Onofri said. 

“Prices in the new and used market have increased considerably over the past couple of years. This increase is translating into larger average loan amounts,” he said.

For Pathways, the average auto loan has risen $2,775 year over year, which represents an 11.7% increase in average loans outstanding.

Hanscom Federal Credit Union, a $1.9 billion-asset lender in Massachusetts, had $350 million in auto loans at the end of the second quarter plus another $231 million in indirect auto loans. 

Dan Picard, Hanscom’s senior vice president of consumer lending and collections, said that with the lack of incentives at automobile dealerships due to limited inventory, auto manufacturers’ financing arms are not offering appealing financing options. 

“As a result, the lending opportunities for credit unions has continued to be steady even in this rising rate environment,” he said. 

Toohig said those loans are also driving up credit union membership, but the question is whether the credit unions can then cross-sell those consumers on other products like credit cards or mortgages. 

It’s easier said than done, Toohig said. “Historically, that number [of cross-sales] is incredibly low.”

What’s in a name? A credit union’s LGBTQ program finds a wider audience Posted by AVCU on 11:21 AM

 Credit unions that tailor services for members of the LGBTQ community may find an unmet need among other demographics as well.

Michigan State University Federal Credit Union in East Lansing, Michigan, is nearing the finish line on development of a feature within its digital banking platforms and card offerings that will allow members to set a preferred name and set of pronouns. The program, which is expected to go live before the end of the third quarter, is like many others that allow credit card users, for example, to put their preferred name on the card.

While such services are developed with a transgender audience in mind, they also appeal to other marginalized groups such as international students or indigenous persons, said Amanda Denney, director of diversity, equity and inclusion for the $6.8 billion-asset MSU FCU, which serves students and staff of the university, as well as employees of the state.

“We have a lot of international students that come over and actually pick Americanized names, and they do this for a number of reasons, but that project is helping that group of people too,” Denney said. “When we hear preferred names and pronouns, people automatically jump to LGBTQ+, but there is such a huge impact [with this project] across the board with really anyone.”

The credit union first explored the concept internally in 2020 with the inclusion of pronouns in staff email signatures and editing of employment documents wherever legally allowed to record a new chosen name. It also incorporated educational material into its trainings on diversity, equity and inclusion to explain the significance of MSUFCU’s change.

Banks and credit unions that provide such products must also make sure their staff are properly instructed on using preferred names and pronouns in every customer interaction.

“Our goal is to allow everyone to be their full, authentic self and that’s really hard to do if you’re consistently being affronted with microaggressions by being misgendered [and] mislabeled,” Denney said. “Very specifically for the LGBTQ+ community, especially individuals that are nonbinary, or transgender, this can be a really important tool for them.”

Organizations such as Daylight, a New York-based digital banking provider for the LGBTQ community, and Mastercard have also launched preferred-name projects with the aim to better serve transgender and nonbinary consumers who endure negative encounters due to a difference between their legal and preferred names.

Some credit unions that already have similar initiatives in place are working to now offer more tailored services in lending for consumers seeking to undergo gender affirming procedures, as well as other LGTBQ funding needs.

Linda Bodie, chief executive and innovator at the $44 million-asset Element Federal Credit Union in Charleston, West Virginia, said she has worked alongside local pride organizations to better understand the needs of its LGBTQ members and determine which areas are most underserved.

“We have specialized lending for adoption, weddings, surgery [and really] anything particular to the LGBTQ+ community … We work closely with our local pride organization, Rainbow Pride of West Virginia, to identify our community needs,” Bodie said.

Element is planning to further its commitment to aiding local members through collaborative housing and employment partnerships with local realtors, pride organizations and other groups to address instances of discrimination during the search for a home.

In addition to her 24-year tenure as Element’s CEO, Bodie helped to organize and launch the LGBTQ credit union support association CU Pride in June 2020, which now has more than 1,200 members nationwide and is dedicated to progressing inclusivity within the industry and offering educational toolkits and opportunities for collaboration.

“With our tenets, which is to create educational opportunities for the credit union system … It gives them the opportunity to understand the community and really push towards our mission, which is to get the entire industry to embrace the LGBTQ+,” said Zach Christensen, co-founder of CU Pride and director of diversity, equity and inclusion and communications at Mitchell Stankovic. 

“Organizationally, credit unions are not queer or LGBTQ, but credit unions can be organizational allies,” through better education, he said. 

A Pew Research Center survey of 10,188 U.S. adults in May found that 5.1% of those under 30 reported they identify as transgender or nonbinary, with the share of adults knowing someone who is either transgender or nonbinary growing to 44% in 2022 from 37% in 2017.

Experts from trade organizations such as the National Association of Federally-Insured Credit Unions and the Credit Union National Association say that institutions need to closely analyze research and feedback from the data gathered or otherwise risk new programs becoming ineffectual.

“One of the things that we’re doing is becoming more intentional about this work and about listening to our communities,” said Samira Salem, vice president of diversity, equity and inclusion for CUNA, which is a supporting organization of CU Pride.

Better serving LGBTQ communities means developing products and services specific to their needs, Salem said. “It is in the DNA of credit unions to serve the underserved [and] the marginalized, and it is our value system.”

But beyond ensuring the success of the new services, credit unions aiming to stand as allies of those belonging to the LGBTQ community must also ensure that their efforts go beyond marketing campaigns and lead to change within the organizations as well.

“It’s not just about marketing and sort of this outward-facing messaging about what you are as an organization [and] what you stand for; you have to put your money where your mouth is, so to speak … and demonstrate that you have diversity, for example, on your board of directors and within your management,” said Ann Petros (formerly Kossachev), who works as the vice president of regulatory affairs for NAFCU.

Offer Your Members More Posted by AVCU on 10:08 AM

 Credit unions nationwide can now give their members free access to thousands of discounts and special savings with CU Offers. The CU Offers website and app were founded by 3 leagues in New England to help credit unions build member loyalty, save members money, and support local businesses.

 CU Offers is an easy-to-use, free app that delivers thousands of exclusive discounts and perks to members, right at their fingertips—with no additional costs to your credit union to participate. A free Marketing Toolkit is available to all credit unions at www.cuoffers.com/creditunions.

 Key Savings Available:

• Dining discounts at local favorites and national chains
• Exclusive access to travel savings on hotels, car rentals, and flights
• Special savings of up to 30% from Dell, plus an extra 10% coupon on accessories
• Discounts on theme park tickets
• Prescription medication savings – available to those with or without insurance
• And much more!

Engage With Your Local Business Community

A unique benefit of CU Offers enables credit unions to support their local small businesses and allows for deeper engagement with new and existing SEGs. Any retail provider of goods and services can add their discounts to CU Offers at no cost. Be the star at your next chamber of commerce event with CU Offers. Merchant deals can be added by visiting www.cuoffers.com/merchants.

 Learn More June 29th, 1:00-2:00 p.m. EST

Credit unions are invited to attend a free informational webinar to learn how they can drive member loyalty and increase member benefits with CU Offers. Register for the webinar here. Attendees will also hear from one of CU Offers’ discount partners – Gentreo. With Gentreo, members get a full suite of Estate Planning documents, education, and secure document storage available with a CU Offers discount.

Try CU Offers for yourself. Joining is easy and free, just go to www.cuoffers.com and start saving today with travel, Dell computers, restaurants, theme parks, estate planning, and more. 

Financial inclusion bill could reignite credit union-bank conflict Posted by AVCU on 10:01 AM

 The trend of credit unions buying banks has grabbed a lot of attention in recent years, but two other key issues have raised tensions between the two industries. 

Bankers have long opposed attempts by credit unions to expand their field of membership and  their business lending capabilities, but proposed legislation would open the door to both. The bill, H.R. 7003, the Expanding Financial Access for Underserved Communities Act, was approved last week by the House Committee on Financial Services by a 27-22 vote.

Introduced by the committee’s chair, Maxine Waters, D-Calif., the bill would allow all federal credit unions to apply to the National Credit Union Administration to expand their field of membership to include underserved communities, including those without a branch within 10 miles.

It would also exempt loans made by credit unions to businesses in those areas from the credit union member business lending cap. Under current law, credit unions are restricted from lending more than 12.25% of total assets to member businesses.

According to the Credit Union National Association, the bill’s member business lending exemption would apply to 2,207 federally insured credit unions that are not already exempt due other designations. 

CUNA also points out that there are no provisions in the bill restricting banks from opening operations in those underserved areas.

Still, the bankers are not amused.

In a letter to the House Financial Services Committee, the American Bankers Association said the legislation will not deliver on the “purported” objective of improving banking access to underserved communities but instead expand taxpayer subsidies of business lending.

According to the NCUA, commercial loans made by credit unions increased $17.3 billion, or 18.4%, to $111.7 billion in the fourth quarter of 2021 from a year earlier.

“What H.R. 7003 seems to provide is the ability for credit unions to expand out-of-market, which contradicts the credit union purpose of serving well-defined local communities and small groups of consumers of modest means,” the letter states. “The legislation also creates a major new loophole in the credit union business lending cap, long one of the most controversial issues in financial services. Bankers remain staunchly opposed to efforts to gut this limitation.”

But credit unions see the proposal primarily as a way to fill a gaping void.

The proposed changes are essential to increasing access to “safe, fair and affordable” financial services in rural communities, communities of color and other underserved places, said Todd Harper, chairman of the NCUA, in a press release.

“They would also advance financial inclusion within our nation’s financial system,” he said.

CUNA said the bill would give communities, small businesses and individuals who have lost access to affordable financial services — or perhaps have never had them — easier access to federal credit unions.

According to CUNA research, more than 750 census tracts in the U.S. are financial deserts, and a net 7,800+ bank branches closed between January 2005 and March 2021. During the same period, more than 1,400 net credit union branches opened.

But the business lending component is the key to the legislation, said Patrick Keefe, a credit union industry observer, former industry advocate and editor of the Regulatory Report.

Any relief from the 12.25% cap would be a big win for credit unions, he said.

“That’s potentially a big shift for credit unions, who are looking for new revenue sources whenever possible,” he said. “The exemption means they could start making more MBLs without constriction.”

Jason Stverak, CUNA’s deputy chief advocacy officer for federal government affairs, said the trade group is working with lawmakers on both sides of the aisle to build consensus around the legislation. 

“Whether the policy advances on its own or along with other legislation is up to House lawmakers, but we’re optimistic we’ll see movement this Congress,” Stverak said.

But according to Keefe, the outlook for the legislation is "challenging, to say the least,” he said. The bill faces a big uphill climb and will likely have to be brought up again in the next Congress.

He pointed to CUNA’s own letter to the House committee members in which CUNA said the only known opposition to the legislation comes from the banking industry, “and their opposition to this legislation reveals their true colors: first, they abandon underserved communities and then they try to keep credit unions out,” the letter states.

“Yeah, that’s all: just opposition from the banking industry. No big deal,” Keefe joked. “Except, it is. Banks clearly see this as an expansion of credit union powers — providing more services to people who aren’t now eligible for membership — and credit union commercial lending, which banks are out to impede, vigorously.”

It will take a pretty big push by the credit unions to get the legislation enacted, according to Keefe, and he is not convinced that most credit unions really care about more business lending authority. “Even though they probably should,” he said.

Introverted Workers Say WFH Was Good for Productivity, Want to Stay There Posted by AVCU on 4:43 PM

 Odds are you are reading this from your home office or from your couch with your tablet in hand. That’s because new data from Poly, an audio/video technology company, shows that 63% of employees are still resisting returning to an office.

The company surveyed 5,000 U.S. employees and found that a strong majority (72%) of employees agree that their employers can do a better job to create a uniform experience between people who work at home and those that are returning to the office.

“Our research indicates that hybrid work is here to stay,” said Dave Shull President and CEO, Poly. “Organizations will need to adapt and upgrade their office gear, to include video-enabled meeting rooms with technology that’s as easy to use as the devices we have all come to know and love while working from home.”

Other findings show:

The majority (65%) of employers are pushing for a return to the office despite the benefits workers cite in remote and hybrid working 71% agree that working from home suits their personality type better, and the same percentage agree that working from home has positively impacted their performance

41% of workers say their work equipment is better at home than in the office (35%)

Despite these benefits, over half (57%) of workers agree they have felt pressure from their manager or company to return to the office

Those wanting to return to the office also depends on worker personality traits, the study finds. For example, employees who consider themselves more introverted are almost twice as likely to say hybrid or remote work is better suited to them (48% vs. 25%) compared to working in the office.

Introverted workers also feel their productivity has increased since the pandemic (64%), compared to extroverted workers (51%). This can be attributed to a better work-life balance (38%), and remote work increasing their confidence (35%).

Those employees who consider themselves more extroverted are also more likely to say hybrid or remote work is better suited to them than working full time in the office (41% vs. 30%).

Higher interest, rising prices, fewer listings: A bad mix for mortgages Posted by AVCU on 1:04 PM

 Rising interest rates and elevated prices have caused sales of new homes to drop, tightening the mortgage market for banks and credit unions.

In addition, pandemic-related supply-chain problems put a strain on the supply of lumber and other building materials over the past two years,  making it more difficult to put new inventory on the market. 

Those factors pushed housing prices to new highs in several major markets. Home prices rose 2.2% in February from January and 20% year over year, according to the CoreLogic Home Price Index. 

Many new homebuyers were forced to the sidelines as a result. Home sales in March were 12.6% lower than last year.

“While the spike in interest rates is undoubtedly having some impact, construction delays appear to be the main culprit,” Curt Long, chief economist and vice president of research for the National Association of Federally-Insured Credit Unions, said in a press release.

As interest rates have risen in response to inflation, refinancing activity is drying up. Freddie Mac said the 30-year fixed-rate mortgage averaged 5.27% for the weekly period that ended May 5, up sharply from 2.96% a year earlier and the highest it's been since 2009. The higher rates have begun to curb demand for home purchases, too.

The $1.9 billion-asset Hanscom Federal Credit Union in Massachusetts was one of many midsized lenders across the U.S. that saw first mortgages dip from the end of 2020 to the end of last year. 

Hanscom’s president and CEO, Peter Rice, said lenders who took high-risk applicants and lowered credit qualification standards probably should be worried entering this market of rapid interest rate increases. 

“We’ve seen this play out time and time again,” he said.

Rice said that despite lower home inventory, he expects Hanscom’s first-mortgage portfolio to remain steady, although he said a “dramatic” industrywide slowdown is certain.

“I’d be very worried about mortgage brokers who, due to the record refinance numbers, have become dependent on that market,” he said. “The interest rate increase will surely bring their business — and business model — to a screeching halt.”

The slowing of the refinance business is expected to result in a 30% year-over-year drop in mortgage originations for the $7.2 billion-asset Wright-Patt Credit Union in Beavercreek, Ohio. 

Eric Bugger, Wright-Patt’s chief lending officer, said the credit union has a team of about 45 employees in its mortgage originations area and the credit union is seeing some competitors do “crazy things” with interest rates, causing Wright-Patt to lose some loans. 

“That always happens, though,” Bugger said. “We’re combating that by keeping a close eye on market rates and trying to come up with new products that fit our members’ needs. We can’t always have the lowest rate. Someone can always undercut us.”

Banks, too, are warning of a sharp slowdown in mortgage activity as interest rates climb and housing supply shrinks.

Megabanks such as Wells Fargo and JPMorgan Chase reported lower mortgage volumes in the first quarter. Regional banks such as Truist Financial and Citizens Financial Group delivered similar results to investors for the quarter. 

“The mortgage origination market experienced one of its largest quarterly declines that I can remember,” Charlie Scharf, Wells Fargo's president and CEO, said on the company’s earnings call last month. Rising interest rates will likely have further “negative impact on mortgage volumes," he said. The $1.9 trillion-asset bank confirmed last month it was laying off a number of home lending employees due to current market conditions. 

Bugger said the key will be having a balanced loan portfolio and in some cases steering members toward a purchase with a payment they can afford. Otherwise, customers may need to wait a little longer to increase their down payment so the monthly outlay can remain manageable. 

But many potential buyers are taking a wait-and-see approach.

“The combination of swift home-price growth and the fastest mortgage-rate increase in over 40 years is finally affecting purchase demand,” said Sam Khater, Freddie Mac’s chief economist.  

For the week that ended April 29, home purchase loan application volume increased 2.5% from the prior week but was 50% lower compared with a year earlier, according to the Mortgage Bankers Association. Its refinance index inched up 0.2% from the prior week after falling for seven straight weeks.  

“The drop in purchase applications was evident across all loan types. Prospective homebuyers have pulled back this spring, as they continue to face limited options of homes for sale along with higher costs from increasing mortgage rates and prices,” said Joel Kan, the MBA’s associate vice president of economic and industry forecasting. “The recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months.” 

Community banks that developed mortgage operations to generate fees on originations and diversify revenue also are warning about the specter of a sustained slowdown.  

The $12.7 billion-asset FB Financial Corp. in Nashville, Tennessee, reported a first-quarter loss for its mortgage division. 

“A confluence of events has created a challenging operating environment in the mortgage industry,” FB President and CEO Christopher T. Holmes said on an earnings call last month.

“We do expect continued tough sledding for mortgage,” he added. “We're reducing our mortgage origination capacity and the corresponding size of our operational functions to operate through the current forecasted down environment.”

From 'Teller' to 'Financial Guide': Branches Can Redefine Roles to Fuel Growth Posted by AVCU on 9:12 AM

 Credit unions have scrambled to stimulate in-person traffic throughout the pandemic to shore up revenue and avert branch closings, but they may need to rethink how they train and recruit tellers if they really want to sustain growth over the long-term.

Advancements in digital technology have for years eroded retail branch visits, forcing credit unions to identify new ways of engaging members. COVID, of course, accelerated that trend. While they continue to reduce staff in line with declines in visits, there is little hope of reversing that digital momentum to reclaim pre-pandemic levels of consumer visits.

Credit unions, however, could operate on a different premise – accepting the shift in consumer behavior, and transforming the way in which team members engage with members, both in approach and content. A new culture centered around proactive outreach with a focus on financial guidance and advice is needed.

The shift coincides with a growing demand for more financial guidance and advice among consumers, many of whom felt let down by financial institutions during the 2008 financial crisis.

Credit unions, like other organizations, have also struggled to fill vacancies in the wake of the so-called Great Resignation, coined after job dissatisfaction levels rose nationwide, culminating in a 20-year high “quit rate” in November last year. According to a recent Pew Research Center survey, people cited a lack of respect and opportunities for advancement, as well as low pay, as reasons for quitting.

The movement is a further indication that credit unions can’t take their employees’ happiness for granted and need to offer more than transaction-based roles if they want to grow. This is particularly true with younger workers, who’ve been defined by their need for a sense of purpose at the office and who comprise the largest percentage of the group.

The landscape has left credit unions to generate sales from a more digitally-disposed member base – but with tellers who’ve been trained to build relationships through branch visits. That leaves them with a choice. They could direct tellers to intensify their focus on increasingly sluggish branch traffic or they could lead a rebranding effort to redefine these roles.

That effort entails prioritizing expanding skill sets – and broadening perspectives – to position tellers as “financial guides” defined less by transactions and more by an ability to improve the financial lives of their members – on their members’ terms.

Credit unions need candidates who can go beyond a reactive sales strategy, serving branch visitors, to a proactive strategy, contacting members by phone, to initiate face-to-face or even video meetings. The goal is to cultivate deeper relationships with members, including those who joined the credit union through a digital channel, attaining the higher balances and longer retentions associated with in-person relationships.

The idea is not to sell more products but to “sell the appointment,” persuading members to commit to a branch visit to discuss additional products and services. It also puts tellers who’ve been trained to serve branch visitors back in their comfort zone of face-to-face engagement.

This requires adopting a new business model where growth hinges on an ability to quickly engage people on calls they perhaps didn’t want to answer. It means equipping tellers, who’ve only interacted with branch visitors across the counter, with the skills needed to initiate those conversations.

It also means recruiters need to screen for interpersonal skills, identifying candidates who can engage members remotely, quickly gain insights into their financial lives and pitch products that resonate with them.

Recruiting should involve rethinking job descriptions for these openings. Instead of focusing on a litany of traditional teller duties unlikely to resonate with younger, potentially more restless, generations, they can showcase an opportunity to serve as a “pathfinder” for a pandemic-weary population facing soaring inflation rates and consuming levels of debt.

To be effective, the descriptions need to inspire candidates with a chance to connect with people and serve a more critical function. They need to address the void employees have felt with previous jobs, pitching roles that allow for more strategic input while appealing to a need to find purpose. They should communicate the hybrid nature of the position, encompassing traditional teller functions while meeting the demands of a more comprehensive “financial guide.”

Credit unions also need metrics to gauge this progress, identifying which calls result in sales and which conversations resonate with which members. They’ll need to monitor the number of calls that result in larger commitments and expanded relationships. They may only secure four appointments out of 20 weekly calls, for example, and only generate sales from two or three of those meetings.

Credit unions have an opening to reposition themselves in the marketplace, attracting the talent of younger generations with branch associate positions that seek to improve society. Tellers who evolve beyond their role as order takers can serve as better growth engines, with a newfound freedom to customize advice and improve the lives of their members.

What’s New In The 5300 Call Report? Posted by AVCU on 8:53 AM

 The NCUA approved major revisions to the 5300 Call Report that take effect in the first quarter of 2022. These changes involve substantial reorganization and restructuring of most sections of the call report, including the removal, addition, and modification of more than 1,000 combined account codes.

The changes are part of the Call Report Modernization Project that began in 2016. The project aims to reduce the reporting burden for credit unions by:

• Streamlining the call report process.
• Reorganizing and improving data collection.
• Accommodating the complex credit union leverage ratio (CCULR) and the risk-based capital (RBC) schedule.
  

CCULR Versus RBC? Which One Is Right?

Credit unions with less than $500 million in assets are considered non-complex credit unions. The regulatory capitalization rules for these credit unions remain unchanged.

Credit unions with more than $500 million in assets are considered complex credit unions. They must choose between regulatory capitalization formulas — CCULR and RBC.

Complex Credit Union Leverage Ratio (CCULR)

The CCULR was designed to provide a simpler measure of capital adequacy for complex credit unions. If an institution meets the qualifications listed below, it may elect to use the CCULR.

CCULR qualification criteria include:

• A net worth ratio of 9% or greater.
• Off-balance sheet exposures of less than 25% of total assets.
• Trading assets and liabilities less than 5% of total assets.
• Goodwill and other intangible assets less than 2% of total assets.

If  an institution qualifies for and elects the CCULR method, it does not have to complete the RBC schedule.

Risk-Based Capital (RBC)

If an institution has more than $500 million in assets and does not qualify for CCULR or elects not to use the CCULR option, it must complete the more complex RBC schedule on pages 24-28 of the new call report.

A credit union is considered “well-capitalized” if it uses the CCULR method or has an RBC ratio higher than 10%.

Of note: Complex credit unions with more than $500 million in assets are now allowed to issue secondary capital as subordinated debt and count this value toward their RBC calculation. Secondary capital issuance was previously limited only to credit unions with a low-income designation.

Notable Changes To The First Quarter Call Report

The call report changes that took effect between the fourth quarter of 2021 and the first quarter of 2022 are substantial and represent the bulk of the Call Report Modernization Project.

The major areas of change include:

• Expanding information on foreclosed and repossessed assets.
• Removing commercial loans from the real estate lending detail.
• Reducing delinquency and charge-off categories and aligning them with loan types.
• Adjusting indirect loan and participation reporting requirements.
• Restructuring categories for investment portfolio reporting.
• Providing new information on off-balance sheet exposures.
• Adding CCULR and RBC calculation schedules.

Many of these changes involve separating, offering additional detail, and aligning information related to commercial lending.

In addition to these changes, the NCUA reorganized much of the call report. Many schedules moved to new pages and areas, although the account codes themselves remain unchanged.

Toyota will lose RAV4, Land Cruiser, Lexus output on quake shutdowns; chip maker Renesas resumes partial production Posted by AVCU on 9:03 AM

 Toyota Motor Corp. will suspend operations at more than half its operations across Japan and is studying potential disruption to overseas production because of supply chain interruptions triggered by a large earthquake that rattled the country this week.

Toyota will halt production for three days starting next week on 18 lines at 11 factories in Japan, out of a total of 28 lines in 14 factories operated nationwide, the automaker said on Friday.

Toyota said it will lose about 20,000 vehicles of output from the quake-related shutdowns.

On top of already announced slowdowns triggered by a cyberattack and microchip shortages, Toyota’s Japan operations will be down 50,000 units in total for March, from its original plan.

The latest suspensions will reduce output of Toyota-brand models including the Crown and Yaris passenger cars as well as the RAV4, Harrier, C-HR crossovers and Land Cruiser SUV.

Also impacted will be the Lexus LS and IC sedans, RC and LC coupes and NX crossover.

Toyota declined to identify which parts supplies were affected by the earthquake.

Toyota's shutdown comes just a day after it cut output from April to June in the face of growing supply chain uncertainty and the lingering impact of the global semiconductor shortage and COVID-19 pandemic.

Toyota slashed global output in April  by 17 percent to 750,000 units. That outlook did not account for potential disruption from the earthquake or the war in Ukraine.

The 7.4-magnitude earthquake, which struck shortly after 11:30 p.m. local time on Wednesday, was centered off the Pacific coast from the northeastern city of Sendai, in the same region throttled by the 2011 earthquake-tsunami disaster that caused meltdowns at the Fukushima nuclear power plant.

The latest quake triggered a tsunami, caused blackouts as far away as Tokyo, derailed the country’s famed bullet train and buckled highways that serve as critical supply arteries.

The earthquake killed three people and injured 190, Japanese public broadcaster NHK reported.

Suppliers slowly restarting

On Friday, suppliers near the quake zone were slowly bringing operations back online.

Critical semiconductor maker Renesas Electronics Corp. said it had resumed partial test-run production at two of three plants near the quake zone. Those plants, its Naka and Takasaki factories, should reach full pre-earthquake production capacity on March 23.

The third Renesas plant that was affected, its Yonezawa factory, restarted all production processes on March 18 and expects to return to normal operational levels on March 20.

All three plants, which make chips for the automotive sector, were automatically shut down when the quake struck. Any long-term interruption at Renesas could have broadsided a global automotive industry already reeling from the worldwide semiconductor shortage.

Renesas emerged as a weak link in the 2011 earthquake, when its Naka plant was thrown offline for months.

Credit Unions Mix New Tech and Trust to Keep Members From Switching Posted by AVCU on 9:45 AM

 Trust is the bedrock of all financial relationships, and it’s doubly so for credit unions (CUs). Member faith in these financial institutions (FIs) brought the sector through the pandemic splendidly, but to keep the rally going, CUs must confront new digital realities with urgency.

It’s all in the data, as seen in the study “Credit Union Innovation: Responding to Member Demands for Digital Financial Services,” a PYMNTS and PSCU collaboration, which found that 24% of CU members would switch to another FI to access more innovative products.

In an interview, PSCU President and CEO Chuck Fagan told PYMNTS that members’ “adjacent experiences, whether it’s through Netflix or Amazon, are putting pressure on the financial side of things, and it’s no longer going be enough to just check the box.”

Fagan said the trust is still there, but “the loyalty may not be as deep as it once was. You’ve got challenger banks. You’ve got tremendous budgets that these larger FIs have in creating [digital] experiences. For credit unions, they have to assemble those best-in-breed partners and create that unified, seamless, integrated experience. That’s not an easy task.”

That’s where credit union service organizations (CUSOs) are coming in with greater resources and experience to bring digital advances to members in accessible platform configurations. Data shows that CU members would prefer to access peer-to-peer (P2P) transfers, mobile check deposit and more through these trusted entities, making digital transformation a top priority this year.

‘Easy Is the New Loyalty’

With branch experiences evolving and mobile banking and financial services gaining ground at an accelerated pandemic pace, how CUs provide digital experience will be decisive.

“We say easy is the new loyalty,” Fagan said. “The easier the enrollment process can be in 2022, the easier experience is going to win out. If your decision as an FI [is to go] with a technology that’s clunky and doesn’t integrate with all of the other connection points you have in that digital experience ... if that experience is disjointed in any way and not easy, then I think that relationship breaks down as a result.”

That makes onboarding a differentiator for CUs, he said, and something they must perfect.

For example, the Credit Union Innovation Report found that 38% of CU members would go to a rival if their CU did not let them deposit checks via a mobile app, and 38% said they would switch if their CUs didn’t provide digital cards that can be issued directly to their digital wallets.

“I think Apple created the expectation, as did COVID, that no longer if you go through a fraud experience, or if your card melts in the car, are you willing to wait two weeks and keep that card top of wallet anymore,” Fagan said. “You want that immediacy.”

Be it mobile check deposit, P2P or checking balances, he added, “If they can get that through their financial institution, that trust factor stays. You have the Venmos, and you have other ways consumers can be direct, but trust [with CUs] still exists, as we found from the study.”

CUs need to work a bit harder on satisfaction scores — which are lagging a bit at the moment — because they are often not the same experience as members engage with when using digital tools.

“Unless you live next door to a branch, there’s no other way you’re going to see the financial institution’s brand on a more regular basis than your payment devices,” Fagan said. “That’s the brand now, because you’re not as connected to the member as before.”

CUs Embrace the New

As CUs integrate more with the expanding connected economy, innovations like embedded finance are becoming as important to members as any of the other digital solutions.

It’s happening in several ways for PSCU and its credit unions.

“You’re going to see examples of that in crypto,” Fagan said. “We’ve enabled crypto purchases through our loyalty platform. You’re seeing instances where people are using points to make their entry into bitcoin at varying levels in terms of the dollars it represents. You’re seeing credit unions having an openness to [embedded options] where, say, your member walks onto a car lot and their digital banking app flashes an offer to them.”

Fagan also pointed to new mortgage and car loan processes delivering fast decisions — and data.

CU members “do feel comfortable bringing their data together at a credit union,” he said. “The focus and push around financial wellness is really the mantra for credit unions. From financial education courses to receiving customized alerts when a member spends too much, there are many ways credit unions are doing a really good job around financial wellness.”

CU members also want buy now, pay later (BNPL) experiences supplied by their trusted institution, and Fagan said the sector is responding and getting used to new ways of underwriting.

“The credit union just has to be comfortable with a different way of lending,” he said. “You’re not getting that credit bureau report. You’re not getting all the data that you would use to typically make a lending decision. It’s the way things have evolved, and you can’t be a laggard in it because that’s where the consumer wants to be.”

Looking at hurdles ahead, he said, “Clearly, 2021 was an outstanding year for the industry … something that will be incredibly difficult to repeat. The common theme among credit unions is reinventing themselves as we look into 2022, and I would say in the first quarter, we’ve seen steady performance out of the payments products. For the remainder of the year, adoption is still a key theme with getting the members connected in through the digital channels.”