Ready To Make The Most Of Today’s Lending Environment? Wright-Patt Credit Union Is.

It’s a tough time to be running a credit union. Inflation has eased somewhat, but savings rates are down across the financial services space, meaning competition for deposits is stronger than it has been in years. On top of that, high interest rates have massively tamped down loan demand, and rates and high prices have scuttled mortgage demand to the point that originations in 2024 are expected to be just half of what they were last year, according to a LendingTree analysis.

But don’t tell all that to Wright-Patt Credit Union ($8.1B, Beavercreek, OH). Despite a 15-year low in mortgage originations, senior leaders at the Ohio-based cooperative are cautiously optimistic about 2024.

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“The only areas that really struggled were first mortgages and vehicle loan refinances, both almost entirely due to interest rates,” says Eric Bugger, chief lending officer at WPCU. “We saw moderate growth in all other areas despite going into 2023 expecting to have a little bit of a liquidity crunch. Thankfully, our deposit volume was strong for the year and we were able to move forward with lending without that worry.”

What does worry Bugger is the effects that rising interest rates and inflation have had on WPCU’s members, a diverse field of hundreds of thousands of members in the Dayton, Columbus, and Cincinnati areas.

Spending And Delinquency Concerns

“Many members who received increases in their paychecks and had a little extra money coming out of COVID are now struggling a bit because they’re spending more on necessities and not just what they want,” the chief lending officer says. “Prices have increased and the benefits of increased wages have been negated. We’re seeing a lot of members struggling again. I don’t believe our members are alone.”

Delinquency in the third quarter increased to 72 basis points, up 19 points from the year prior. For non-commercial real estate loans, it was 49 basis points in the third quarter of 2023, up 10 basis points from the year-ago quarter.

3 Priorities For 2024

Bugger, who served eight years as vice president of consumer lending before becoming CLO four years ago, says lending managers have multiple priorities in 2024, but three are particularly worth noting.

First, the credit union will continue to move its credit card portfolio from in house to Co-Op, a move expected to take most of the year, but that will enable it to offer better products and service.

Second, WPCU aims to increase its purchase money first mortgage business thanks to the dip in refinancing.

“We have a great team of mortgage loan originators,” Bugger says. “But most of them have only originated loans in a very low interest rate environment.”

To counter that, the credit unions is providing coaching on how to seek out referral sources and help first-time homebuyers who might be reluctant to make the move.

Third, WPCU is helping women-owned, minority-owned, and veteran-owned businesses. In the second half of 2023, the credit union began a commercial loan program and has set aside $10 million to help small businesses access capital, grow their businesses, and, hopefully, create local jobs.

Lower Interest Rates Underpin Growth Goals

Economists expect lower interest rates this year as inflation softens and recession concerns continue to influence the Fed’s thinking. That along with strategies specific to each of the cooperative’s lending products should help drive year-over-year growth.

For auto lending, Bugger says indirect lending continues to be fairly steady, but captives are coming back with aggressive subvented interest rates.

“Most of our direct business involves refinances,” Bugger says. “That business will likely increase if interest rates fall. Hopefully, we’re able to help members lower their interest rates and their monthly payment if needed by refinancing loans that were sent to banks or dealership captives at higher rates.”

Of first mortgages, Bugger says WPCU has invested significant time and resources and hopes to see some positive movement in purchase money and refinancing this year this year by improving pricing and other strategies.

“We’re cautiously optimistic,” he says. “We’re spending a lot of time getting out in front of the real estate community and trying to develop products that will appeal to future homeowners. We’re hoping that pays off in 2024.”

Second mortgages have been strong for the past two years at WPCU, and the credit union expects growth to perhaps moderate a bit.

“Members are continuing to use the equity in their homes to remodel and expand their existing homes instead of potentially moving up,” Bugger says. “That’s driving quite a bit of second mortgage volume.”

Meanwhile, unsecured lending is an area that might prove particularly impactful for helping cash-strapped consumers with tightening budgets in 2024.

“Members need our help to consolidate debt and make good decisions with their credit cards,” Bugger says. “We offer a low interest rate credit card that’s great for members who want to pay off credit card debt without getting swallowed up by the interest.”

The CLO adds WPCU also does quite a bit of closed-end signature loans for members who want to pay off other debt without worrying about running up debt on a credit card or line of credit.

“If they’re disciplined, this can give many members the fresh start they’re looking for,” Bugger says.

If interest rates drop at all, we’ll likely see a fair amount of our portfolio look to refinance from the higher rates they’ve gotten in the past two years. That’ll temper our growth numbers a little.

On the commercial side, lending has grown sharply over the past few years but remains a relatively small part of WPCU’s portfolio.

“We have some solid accounts on the books and our team of relationship managers is bringing in some great strategic relationships,” Bugger says.

Overall, the WPCU senior lender expects to see quite a bit of volume in 2024; however, the interest rate environment will have the final say.

“If interest rates drop at all, we’ll likely see a fair amount of our portfolio look to refinance from the higher rates they’ve gotten in the past two years,” Bugger says. “That’ll temper our growth numbers a little.”

Informing The Board. Educating Members.

Bugger says keeping the credit union’s board members up to date without overwhelming them is a challenge that will continue into 2024 as managers share changing metrics with the volunteer directors. The situation is further complicated by compliance.

As for members who might be struggling, Bugger says he hopes interest rates come down a little in 2024, which will help with credit card payments and other obligations. But WPCU isn’t letting up on the assistance it provides.

“We’re doing what we can to teach our members good money habits and how to budget properly,” Bugger says. “We’re reminding them to be disciplined on what they spend money on when times are more financially challenging.”

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