Thursday, September 24, 2020

A survey found three out of four companies are planning to award annual performance raises & bonuses next year, roughly the same percentage as this year.

Despite the pandemic economic recession, most employers, including financial institutions, said they plan to provide raises and bonuses for employees in 2021.

The 2020 General Industry Salary Budget Survey, conducted by Willis Towers Watson Data Services, found companies are projecting average salary increases of 2.8% for all employees next year, including exempt, non-management and management employees. Nonexempt salaried and hourly employees as well as executives are in line to receive slightly smaller increases (2.7%).

Among financial institutions, executives are projected to receive salary increases of 2.8%; managers (non-executives), 3.1%; exempt non-management and nonexempt salaried employees, 2.9%; and nonexempt hourly employees, 3%, according to the survey.

Among other major industry groups, the hard-hit health care and retail industries projected a slight bump but still fell shy of pre-pandemic levels with salary increases projected to average 2.6% and 2.8%, respectively. Employees in the insurance and non-durable goods industries are in line for above-average increases of 2.9% and 3.0%, respectively.

Only 7% of companies are not planning pay increases next year, down significantly from 14% this year, an indication that many organizations are projecting a turn toward normalcy in 2021. Companies granted employees increases between 2.5% and 2.7% this year, below the 3%

they had budgeted before the pandemic hit. Salary increases have hovered around 3% for the past decade, according to Willis Towers Watson, a risk management, insurance and advisory company.

Throughout this year, credit unions across the nation have been providing bonuses or hourly pay increases to front-line employees who are working under challenging circumstances while serving members during the corona-virus crisis.

“This has been the most challenging compensation planning year for many companies since the Great Recession,” Catherine Hartmann, North America Rewards practice leader at Willis Towers Watson, said. “However, unlike then, companies have been hit differently depending on their industry, the nature of how work gets done and the type of talent they need. While many companies managed to avoid cutting salaries during the pandemic, most have reduced the size of this year’s salary budgets and are holding the line on increases for next year. At the same time, companies continue to embrace variable pay and other reward initiatives to recognize and help retain their best performers.”

The survey also found three out of four companies are planning to award annual performance bonuses next year, roughly the same percentage as this year.

Bonuses, which are generally tied to company and employee performance goals, are projected to average 11% of a salary for exempt employees, while bonuses for nonexempt salaried and hourly employees will average around 6.8% and 5.6%, respectively.

“Most companies will continue to be in a cash preservation and cost optimization mode regarding their budgets. And although many companies are looking toward stabilizing their business next year, the full extent of the economic impact of the pandemic is yet to play out,” Hartmann explained. “Companies will remain cautious and continue to adopt strategies that attempt to balance employee engagement with protecting their core business. This could call for further segmented allocation of base salary increases and use of discretion to preserve incentive payouts for companies that don’t reach performance targets.”

The Willis Towers Watson Data Services General Industry Salary Budget Survey was conducted between April and July 2020 and included responses from 1,010 companies representing a cross section of industries, including financial services.

 


Wednesday, September 23, 2020

CUNA To Adjust 2021 Dues

WASHINGTON—CUNA is reporting its board has approved a resolution to adjust 2021 affiliation dues to provide relief for credit unions. The trade group said additional details will be released in the Fall.

According to CUNA, the adjusted dues will help credit unions continue to prioritize the needs of their employees, members and communities amid the current health and economic emergency.

“As communities across the country address the costs associations with the COVID-19 pandemic, it will be more crucial than ever for credit unions to have access to the tools and solutions that help them fulfil; their people-helping-people mission,” said CUNA President/CEO Jim Nussle. “This move will allow CUNA and the leagues to continue advocating for your priorities while providing credit unions additional flexibility to deliver for their members and communities. The credit union difference is undeniable, and our current operating environment makes it all the more imperative that we continue to reinforce that difference to lawmakers facing very difficult decisions.

“Across the country, state and local governments are bracing for budget shortfalls next year due to reduced revenues created by the pandemic and associated safety measures…,” Nussle continued. “As credit unions continue to help their members navigate the tumultuous economic environment, CUNA and the leagues will continue to provide the compliance resources, economic insights and operational support that make the credit union difference possible.

‘A Challenging Year’

“This has certainly been a challenging year, and credit unions have absolutely earned their title as financial first responders,” Nussle stated. “While we will continue to face these tough challengers next year, I look forward to us working collaboratively to overcome them.”

CUNA said it has found the economic impacts of the coronavirus pandemic on credit unions varies widely.

“For credit unions that are well-positioned financially, CUNA is encouraging those members to consider supporting the movement in other ways. Credit unions can expect to receive more information from CUNA and their leagues detailing the specifics of their 2021 dues this fall,” CUNA said.

 

Lower earnings and higher loan charge-offs by the fourth quarter and into 2021.

Some economists this month have been warning that recent improvements in the economy, including job gains and an exuberant housing market, are masking some underlying realities that will cause further drops late this year.

For credit unions, CUNA predicted those trends will lead to lower earnings and higher loan charge-offs by the fourth quarter and into 2021.

The pandemic recession is leading Americans along diverging paths: Those with high incomes have tended to experience fewer and shorter layoffs, while many low-income workers are seeing temporary furloughs morph into extended unemployment even as the extra $600-a-week federal unemployment assistance expired at the end of July, the analysts said.

During the first three months of the COVID-19 pandemic, nearly 11 million households fell behind on their rent or mortgage payments and 30 million individuals missed at least one student loan payment, according research released Sept. 17 by the Mortgage Bankers Association of Washington, D.C.

The MBA found that 11% (5.9 million) of renters reported a missed, delayed or reduced payment, while 8% (5.1 million) of homeowners missed or deferred at least one mortgage payment. Minority groups were the most likely to miss rent, mortgage and student debt payments.

However, federal government stimulus programs and employees being called back to work appear to have helped most individuals make their housing payments, according to Gary V. Engelhardt, a Syracuse University economist and one of the researchers for the MBA report.

“Families’ continued ability to meet their housing obligations during the ongoing pandemic is critical to the health of the housing and mortgage industries,” Engelhardt said.

“The stubbornly high rates of new COVID-19 cases and the labor market’s sluggish recovery both present significant challenges for household finances as the country enters the fall. Particularly for renters, the combination of those who missed a payment — or were offered and did not take it — is substantive enough to suggest real risk to their ability to make upcoming payments.”

The report followed the same set of households from before the outbreak through the end of June. The MBA said it plans to release data from the third quarter later this fall.

Economist Joseph Mayans said the economy bounced back faster than expected in May and June with the $1,200 stimulus checks, enhanced unemployment and businesses starting to reopen in some states “quicker than many economists were expecting.”

But even though about 10 million jobs were recovered since April, the nation still has 10 million fewer jobs than before the pandemic, and growth is slowing, Mayans said during a Sept. 15 consumer credit webinar sponsored by Experian.

“That’s not sustainable,” Mayans said. “You can’t have that many people out of work and expect the recovery to continue.”

He continues, “The recovery is in a precarious position. We’ve lost that stimulus and there are a lot of unknowns.”

Mayans said the major reason housing is doing so well in the recession is because of a “K-shaped” recovery with fortunes rising for high-wage workers and falling for lower-income workers.

Low-wage earners have felt the brunt of job losses and are struggling to pay bills, while high-income workers are seizing the opportunity to move or refinance with historically low interest rates.

At the same time, prices have continued to rise, providing homeowners more equity and reducing the risk of foreclosure. He said he expects housing to remain strong at least through the fall.

Gavin Harding, a senior business consultant for Experian, said the prevalence of high-income borrowers is caused both by job trends that keep more of them in the market and lender standards that are keeping out many lower-income buyers.

“The hurdles to get those good deals are dramatically increasing,” Harding said. “You’re going to need equity, you’re going to need cash down, and a very, very good credit score.”

Experian’s data showed that buyers with Super Prime credit scores (780-850) accounted for nearly half of originations in August, and their volume rose 35% from a year earlier.

Prime borrowers (661-779) accounted for nearly as many originations, but their volume fell 14% from a year earlier. Everyone else accounted for less than 5% of deals and all fell precipitously. Near prime (601-660) deals fell 47% and the drops for subprime (600 or less) exceeded 60%.

U.S. first-mortgage originations in the three months ending June 30 were $928 billion, up 85.2% from 2019′s second quarter. Purchase mortgage originations were $348 billion, down 2%, while refinances grew four-fold to $580 billion.

At credit unions, first-mortgage originations were $79.4 billion in the three months ending June 30, up 94.4% from 2019’s second quarter. The gains were relatively uniform across regions. By comparison, non-real estate loan originations rose only 1.3%.

First-mortgage balances were $10.88 trillion as of June 30 among all U.S. lenders, up 4.1% from a year earlier. At credit unions, first-mortgage balances grew 13.7% to $507.1 billion as of June 30.

The MBA, which forecast originations will continue climbing into next year, has continued pushing back its forecast for a decline.

On March 6, five days before the World Health Organization declared COVID-19 a pandemic, the MBA forecast mortgage originations would start to drop in this year’s fourth quarter. Its Sept. 18 forecast showed the drop isn’t expected until 2021’s second quarter.

Its forecast for total originations for 2020 have improved from a 7% drop in December’s forecast, to a 20% gain in March’s forecast and a 45% gain in the Sept. 18 forecast. It now expects 2020 purchase mortgages to rise 10% and refinances to nearly double, it said.

Monday, September 21, 2020

Building a Digital Strategy for Post-COVID Debt Recovery

As the COVID-19 pandemic continues, some credit union relief and government support programs are due to expire – and many Americans are still struggling financially. While these short-term programs have helped, the drastic disruptions in employment and member behaviors over the last several months are creating major, lasting changes for credit unions. As members look for financial solutions and alternatives while staying safe, two of the biggest shifts are increasing call volume and website traffic, prompting credit unions to evaluate and improve their digital capabilities to meet future collections and recovery needs.

Credit unions are no strangers to helping members through difficult times. However, the impacts of the pandemic are widespread. The sheer volume of members faced with short- and long-term unemployment is daunting, and collection leaders must realistically re-forecast delinquencies and potential losses in a world with many unknowns. How many jobs will come back after temporary layoffs? How many will be affected indefinitely due to employers’ inability to survive? As these questions go unanswered, credit unions will need to focus on being agile to respond to economic uncertainties.

TransUnion predicts increases in collections and delinquency volumes through September. As current financial relief programs sunset, “lenders are going to have to see who can resume payments, who needs refinancing or modifications, and who can’t pay,” said Liz Pagel, senior vice president and Consumer Lending business leader at TransUnion, in a recent article on TheFinancialBrand.com.

Improving Digital Capabilities for Better Collection Efficiencies

To effectively address and plan for collection and recovery challenges, credit unions will need to strike a balance between using human interaction and artificial technologies to carry out member services – understanding and adapting to what members want and are willing to do remotely.

As you rethink your credit union’s long-term collections strategy, here are some suggestions for incorporating new technologies in your collections operations to assist in the overall member experience.

  • Connect and engage with members on their preferred digital platforms throughout the collections process.
  • Reallocate any under-utilized credit union staff and consider implementing automated solutions, such as callback assist, to prepare for increases in inbound calls in the collections department.
  • Offer a seamless and secure digital platform for a member-focused collections process.
  • Seriously consider outsourcing as part of your ongoing collections strategy.
  • Revisit your credit union’s financial hardship policies.
  • Review your credit union’s digital-led payment plans.
  • Consider deploying digital self-service options for members:
    • Mobile apps
    • Automated voice trees
    • Self-service web portal
    • Virtual agents

In these unprecedented times, credit unions have an opportunity to become even more valuable to their members through personalized experiences that are digitally driven – yet still enabled by the personalized care for which credit unions are known.

By: Wendy Elieff, SVP, Client Service and Marketing, CU Recovery & The Loan Service Center

Wendy Elieff oversees the success of the Client Service and Marketing teams in CU Recovery & The Loan Service Center, a PSCU subsidiary. Wendy has worked for CU Recovery for the past 20 years. She is responsible for developing, implementing and monitoring cohesive marketing strategies to increase brand awareness. She is also responsible for building and maintaining client relationships by staying abreast of and responding to changes in the credit union marketplace.

Help us support the "Tunnel to Towers Fondation"

The mission of the Stephen Siller Tunnel to Towers Foundation is to honor the sacrifice of firefighter Stephen Siller, who laid down his life to save others on September 11, 2001. We also honor our military and first responders who continue to make the supreme sacrifice of life and limb for our country.
  • In response to COVID-19, Tunnels to Towers has established the COVID-19 Heroes Fund, pledging to support frontline health care workers by providing meals, personal protective equipment (PPE) and, should tragedy strike, financial relief through temporary mortgage payments on homes of health care workers who lose their lives and leave behind young children.
  • Through the Fallen First Responder Home Program, Tunnel to Towers aims to pay off the mortgages of fallen law enforcement officers and firefighters killed in the line of duty that leave behind young children.  The Foundation’s goal is to ensure stability and security to these families facing sudden, tragic loss
  • The Stephen Siller Tunnel to Towers Foundation builds mortgage-free Smart Homes for our most catastrophically injured veterans. Each home is designed to address the unique needs of each individual.
  • The Gold Star Family Home Program, launched in September 2018, honors the legacy of those who made the ultimate sacrifice while serving our country. The Foundation will provide a mortgage-free home to surviving spouses with young children.

 

Friday, September 18, 2020

NCUA Equity Ratio Drops to 1.22%, Premium May Be Coming

 The NCUA’s equity ratio stood at 1.22% at the end of June — approaching the 1.20% level at which a formal restoration plan would be required, NCUA officials told the agency board Thursday.

The ratio has dropped 13 basis points since the end of 2019, largely because of a huge increase in insured deposits because of the coronavirus crisis, Eugene Schied, the agency’s CFO, said during the board’s monthly meeting. The agency’s Normal Operating Level is 1.38%. Federal law allows the NCUA to assess a premium on credit unions if the equity ratio dips below 1.30%. The law requires the agency to adopt a plan to increase the equity ratio once it dips below 1.20%.

The pandemic and stay-at-home orders, decreases in consumer spending and other government actions has led to an “unprecedented growth” in insured deposits, Vicki Nahrwold, supervisory risk management officer in the agency’s Office of Examination and Insurance, told the board.

The Federal Credit Union Act defines the equity ratio as “(A) the amount of Fund capitalization, including insured credit unions’ 1% capitalization deposits and the retained earnings balance of the Fund (net of direct liabilities of the Fund and contingent liabilities for which no provision for losses has been made) to (B) the aggregate amount of the insured shares in all insured credit unions.”

The NCUA’s equity ratio is evaluated twice a year, Schied said.

The board did not move to adopt a restoration plan, which could have included a premium to be paid by federal credit unions.

Nonetheless, board members said the agency must closely monitor the equity ratio.

Vigilance is needed,” NCUA Chairman Rodney Hood said. He said the FDIC faces similar problems, adding that the agency has adopted a restoration plan.

Nahrwold said increasing the equity ratio by 5 basis points would cost credit unions $500 for each $1 million in insured shares.

Board member Todd Harper said that charging credit unions premiums during the economic downturn is “less than optimal.” He said the NCUA board should work with Congress to change the operations of the Share Insurance Fund.

He said operating in a counter-cyclical fashion would allow the agency to build up reserves during strong economic times to cover losses during poor economic times.

Board member J. Mark McWatters said he is “apprehensive” about the downward trend in the equity ratio. McWatters continues to serve on the NCUA board because the Senate has not yet confirmed his replacement, Kyle Hauptman.

“Regrettably, it’s not alarmist to foresee the Equity Ratio dipping below 1.20% in 2021, with far reaching statutory consequences, including the possibility of future credit union premium assessments,” he said.

He said the agency acted prudently when it set its Normal Operating Level at 1.39%, adding that it provided a “safety net” for the agency.

During Thursday’s meeting, the board also adopted a final rule that defers the requirement to obtain a written appraisal or estimate of market value of up to 120 days following the closing of a transaction for certain residential and commercial property. The board adopted the proposal as an interim final rule earlier this year.

The rule expires at the end of the year.

The board also was told that implementation of the agency’s Modern Examination and Risk Identification Tool has been slowed by the pandemic. The board also approved an order that grants an exemption from Customer Identification Program requirements for loans made to customers for purchases of property and casualty insurance policies.

Thursday, September 17, 2020

The Federal Open Market Committee expects no rate increases in the next several years

WASHINGTON—Credit unions can prepare for low rates to continue through 2023, according to new projections released by the Federal Reserve.

The Federal Open Market Committee adjourned its meeting on Wednesday with a statement saying it not only expects no rate increases in the next several years it will provide additional support to the economy as is needed.

In its statement, the Fed said it would maintain rates near zero “until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

The policy meeting is the first for the Fed since it announced a significant policy shift in its approach to inflation and in how it will consider other economic metrics. Practically speaking, the shift indicates the Fed moving forward will be less inclined to increase interest rates when the unemployment rate falls, as long as inflation isn’t on the rise.

In addition, at its most recent meeting FOMC officials also issued a new forecast for a faster-than-expected decline in the unemployment rate in mid-2020, with the Federal Reserve not projecting unemployment will average around 7% to 8% during the final quarter of 2020, a reduction from June’s projections of around 9% to 10%.

Fed officials indicated in their statement they remain relatively concerned the reopening of the economy is going to reveal deeper issues, and that many employees in hard-hit economic sectors are likely in for long unemployment.

The Fed said rates will remain low because it does not see inflation returning to the long-time goal of 2% until the end of 2023, at the earliest.

With inflation running persistently below the Fed’s 2% goal in recent years, the Fed said Wednesday it would “aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time” and so that longer-run expectations of future inflation remain anchored at that level, the statement said.