Credit unions with balance sheets poised to take advantage of animproving economy in 2015 can expect to grow financially, as wellas in service to their members, said panelists at a Friday webinarsponsored by Catalyst Strategic Solutions.

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The webinar, “2015 Blueprint for Success,” was anchored by ateam of balance sheet experts from Catalyst, part of Catalyst Corporate Federal Credit Union in Plano, Texas.Participants in the 40-minute session included Mark DeBree,director of ALM services, Sarina Freedland, senior investmentofficer, and Steven Houle, director of advisory services.

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“In 2014, it looked like the economy was headed in the rightdirection,” said moderator Jane McGarry, a Dallas-Ft. Worthtelevision journalist. “2015 could be the year interest rates startto rise, which could have a dynamic impact on credit unions.”

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Rate increases likely would be driven by several positiveeconomic indicators, including declining oil prices that easeeconomic pressures on consumers and the continuing increase in jobcreation, which fell just shy of 3 million in 2014, according tothe U.S. Bureau of Labor Statistic's announcement Friday.

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However, the lack of wage parity that accompanied the jobsincrease, a relative stagnation in home sales and continuedeconomic stress overseas could slow growth, but won't stop itcompletely, according to Freedland.

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“Manufacturing – and mainly auto manufacturing – was a shiningspot in 2014,” Freedland said. “America loves to buy new cars. Ifyou're buying a new car, you now have a used car to sell and that'sa great source of loan demand for credit unions.”

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Short-term investments performed well in 2014 and show everysign of continuing, Freedland added. The current yield on CDs isstronger than many other investments and their maturity rates are agood match to many credit unions' balance sheets.

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Credit unions also should focus on rebuilding their short-terminvestment ladders to increase liquidity in the face of a morecompetitive deposit-rate environment, she added. In fact, creditunions that find ways to reach beyond their current membershipcould profit handsomely.

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“Credit unions should issue CDs on a national basis and notrestrict them simply to their own members,” Freedland said. “Creditunions able to market to other institutions' members nationwide canbring in more deposits now, taking advantage of current low ratesbefore they jump up and secure long-term, less expensivefunding.”

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Read more: Deposits will be needed to meetescalating loan demand …

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Growing credit unions' deposit bases also willbe critical to keeping up with escalating loan demand. Institutionswithout money to lend could find themselves struggling, accordingto Houle.

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“Credit unions overall saw a 10% loan growth rate throughSeptember and that's fantastic,” Houle said. “However, some smallercredit unions found themselves with a negative growth, which causedthem some heartburn. Hopefully, this trend will change.”

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Real estate loans still comprise a little more than 50% ofcredit unions' overall lending portfolio. Delinquencies and chargeoffs have declined to an average 1.3% from 3% in 2009, with anaverage provision for loan loss of 26 basis points, down from 75basis points in 2010.

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“In 2015, lending will grow by another 10% and loan quality willremain impeccable,” Houle said. “On the flip side, credit unionsmay want to broaden their standards and do more lending on lowergrades of paper that will bring a higher yield.”

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For those credit unions that are struggling to make loans, Houlesuggested that the institution first decide if the problem isorganic, which he described as relating to the loan program'spricing, policies and structure, and make the necessaryadjustments. Indirect lending through auto dealerships andparticipation loans in which the credit unions shares both risk andreward with other institutions are two more ways to lengthen andstrengthen a struggling loan program, he said.

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“Data-mine your members and see where else they have loans sothat you can capture additional business,” Houle added. “Outboundtelemarketing will help you get to know your members and theirneeds and wants as well as help maximize your marketingdollar.”

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However credit unions may approach 2015 must be with an eyetoward an ever-changing regulatory landscape, and certain changescoming own the road could have a big impact, according to DeBree.

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“Examiners are looking for credit unions to understand risk,create plans to manage that risk, and then enact those plans,”DeBree said. “Risk management is a balancing act, one where we walka very fine line.”

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Leading items on the 2015 regulatory agenda include newstandards for interest rate risk, concentration risk and liquidityrisk, which DeBree expects to move to the forefront both this yearand in 2016.

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“One big fear is how well credit unions can adjust deposit ratesif interest rates rise,” DeBree said. “If credit unions changedividend rates will they see deposits walk out the door? It's notsomething that will happen overnight, but credit unions shouldprepare for it.”

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In order to compete effectively, DeBree advised credit unions tothink outside the box when it comes to products, pricing and memberservice. However, all strategies should be governed by risk-baseddecision making that evaluates pressure points and adjustsstrategies to manage balance sheet risk in all areas. Keeping aneye on the Fed and managing price stability should also factor into any credit union's 2015 strategic plan.

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“Credit unions exist to serve their members, but there is adichotomy between what everyone wants from the credit union whatthe institution can realistically do,”DeBree said. “ There is stilltime for most credit unions to restack their balance sheets andmoved toward risk-based processes in order to succeed.”

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