Economic and credit union industry trends, including inflation and a tough atmosphere for recruiting and retention, have affected credit unions nationwide. When attracting and keeping employees are difficult tasks, labor costs often increase while operations suffer. And when prices increase, your members’ money doesn’t go as far as it used to, whether they are spending to fill up their gas tanks, put food on the table, or pay their loan balances. Here’s a look at some of the top credit union industry trends and considerations for combatting their effects.
According to CUNA Mutual Group’s October 2022 Credit Union and Economic Report, credit union liquidity declined 6.3 percentage points from August 2021 to August 2022, which is the fastest year-over-year decline we have seen in 22 years.
Inflation has pushed credit union loan growth to a record high. CUNA’s data shows from August 2021 to August 2022, credit union loan balances increased by 17.8%, well above the 7% long-run credit union average loan growth. And according to the NCUA’s Q2 2022 data, the loan-to-share ratio stood at 74.8%, up from 69.6% in the second quarter of 2021.
Credit unions need to balance loan demand and deposit growth and maintain a competitive edge. Credit unions facing steady growth in their loan-to-share-ratio may consider the following:
- Pushing for deposit growth with limited-duration savings specials.
- Slowing loan growth by limiting promotional activities.
- Becoming more selective in underwriting.
- Avoiding additional loans on the balance sheet and managing the liquidity and interest rate risk of your first mortgage portfolio by selling loans on the secondary market to government-sponsored enterprises and affiliates like Fannie Mae, Freddie Mac, the Department of Veterans Affairs (VA), the Federal Housing Administration (FHA).
- Selling loan participations to convert assets into liabilities and free-up capital to meet other operational or financial goals.
Increasing Loan Delinquency Rates
According to the NCUA’s Q2 2022 data, the delinquency rate was 48 basis points, up two basis points from the second quarter in 2021, at federally insured credit unions. The delinquency rate for credit cards rose to 107 basis points, up from 77 in the second quarter of 2021. And in the second quarter of 2022, the auto loan delinquency rate increased to 45 basis points, up 14 basis points for the year. To combat increases in loan delinquency, credit unions should:
- Offer various payment options, such as principal-only, interest-only, or a combined payment. And offer different payment channels, such as pay-by-phone and text-to-pay.
- Push for paperless. Borrowers who receive electronic bills may be more responsive and receptive to other types of account management features, including enrollment in recurring payments.
- Encourage online and mobile banking. Borrowers can check their balances in real-time and receive upcoming loan due date reminders by email or text.
- Utilize forbearance to allow borrowers to delay loan payments without you declaring the borrower delinquent.
Rising Labor Costs & Operating Expenses
Just like other sectors, credit unions are facing high employee turnover. The U.S. Bureau of Labor and Statistics estimates roughly 35,100 open teller positions each year over the next decade will need to be filled due to workers exiting the labor force or transferring to other occupations. In a competitive hiring market, credit unions are also facing increasing wages and salaries. Credit unions looking to reduce labor costs and operating expenses should consider the following:
- Automating time-consuming cash processes, such as cash counting, drawer preparation, and start or end-of-day activities. Your credit union may be able to increase efficiency and productivity, reduce staffing requirements, decrease overtime, reduce errors, and save time and money.
- Keep in mind that automation does not negate the importance of recruiting and employee retention. On the contrary, it should compound the benefits of experienced tellers and supervisors, which can help your credit union improve operations and offset wage increases.
We’re Here To Help
ARB’s Credit Union Advisory Services Team helps our clients stay alert to economic and credit union industry trends and accounting and regulatory updates. We help our credit union clients implement best practices and create plans for implementation and compliance. Contact me today for more information.
by Sam Pedersen, CPA
Samantha Pedersen joined ARB in 2004 and currently serves as a director. She provides business advisory and attest services primarily to credit unions, commercial businesses, manufacturers, and nonprofit organizations. Sam is responsible for coordinating the training and implementation of Financial Accounting Standards Board (FASB) updates at ARB.