Nov. 12, 2025

Planning to Win: Lending Strategies for an Uncertain Economy

Apple Podcasts podcast player iconSpotify podcast player icon
Apple Podcasts podcast player iconSpotify podcast player icon

The economy is shifting fast, and your lending strategy cannot afford to lag. In this episode of Leaders in Lending, hosts Barry Roach and Drew Megrey explore how scenario planning helps financial leaders stay ahead of market volatility.

Learn how top executives are navigating uncertainty, managing technology risks such as AI and cybersecurity, and making bold decisions that could define 2026. Whether you are a credit union executive, bank leader or fintech strategist, this episode offers insights to build resilience and growth.

The lending landscape is changing. Do not just react to it. Plan to win.

In this episode, you will learn:

  • Why scenario planning is the most important skill for 2026
  • How smart leaders use AI tools to forecast, mitigate risk and act faster
  • What is really happening with consumer behavior and spending patterns
  • How rising delinquencies and tightening credit standards are shaping lender appetite
  • Why Buy Now, Pay Later could become a silent threat to credit quality
  • How to balance cybersecurity spending with innovation and digital growth
Do not risk being caught off guard in 2026. Learn how to plan, pivot and outperform starting today. Subscribe now so you never miss a strategy that keeps you ahead.
WEBVTT

1
00:00:00.080 --> 00:00:02.720
The unknown. It depends on the month, it depends on

2
00:00:02.759 --> 00:00:04.799
the week, it depends on the quarterer. It's kind of

3
00:00:04.839 --> 00:00:07.759
been the whole theme through twenty twenty five.

4
00:00:08.160 --> 00:00:10.759
Some progressive lenders out there right now that I'm seen

5
00:00:10.919 --> 00:00:13.640
actually ramping up, so where some start to wind down

6
00:00:13.679 --> 00:00:15.800
into the fourth quarter and say, oh no, we're all good.

7
00:00:15.919 --> 00:00:18.920
We're kind of closing up shop about Thanksgiving or early December.

8
00:00:19.000 --> 00:00:20.600
Some are going, no, let's hit the gas.

9
00:00:20.679 --> 00:00:22.359
You can go on Amazon. You can go on to

10
00:00:22.800 --> 00:00:25.879
Walmart's website and buy TVs and things of that nature

11
00:00:25.960 --> 00:00:29.039
and make four monthly install the payments of fifty dollars.

12
00:00:29.320 --> 00:00:32.159
This is like navigating your sale boat across choppy seas

13
00:00:32.240 --> 00:00:34.359
or rough wards or calm seats. I don't think anyone

14
00:00:34.399 --> 00:00:36.920
sees calm seas. No one is saying, oh yeah, twenty

15
00:00:36.920 --> 00:00:43.079
six is going to be a layup. Welcome back to

16
00:00:43.119 --> 00:00:45.560
upstarts leaders in lending. I'm Barry Roach, and I'm here

17
00:00:45.560 --> 00:00:48.359
with our co host Drew Megriy. Today we're tackling one

18
00:00:48.359 --> 00:00:51.840
of the biggest challenges executives are facing right now, navigating

19
00:00:51.880 --> 00:00:55.159
an economy that's constantly shifting from high rates and regulatory

20
00:00:55.240 --> 00:00:58.200
changes to evolving consumer behavior. We'll walk through the key

21
00:00:58.240 --> 00:01:01.359
shifts that are shaping lending today and the practical playbook

22
00:01:01.439 --> 00:01:04.599
leaders are using to stay resilient. Let's get started. How

23
00:01:04.640 --> 00:01:05.519
are you doing today, Drew?

24
00:01:05.680 --> 00:01:07.319
I'm doing well. Thanks, very good.

25
00:01:07.359 --> 00:01:10.840
Good So, Drew, You and I are out there talking

26
00:01:10.879 --> 00:01:15.400
to CEOs chief lending officers CFOs all the time. It's

27
00:01:15.439 --> 00:01:18.400
the fourth quarter of twenty twenty five, we're getting into

28
00:01:18.400 --> 00:01:20.640
business planning. A lot of them are trying to sort

29
00:01:20.640 --> 00:01:23.079
of figure out what the rest of the year looks

30
00:01:23.159 --> 00:01:25.680
like and gets some momentum going into twenty twenty six.

31
00:01:26.159 --> 00:01:29.000
So what are you hearing from the executives out there

32
00:01:29.040 --> 00:01:32.519
today in terms of what their biggest concerns are, not

33
00:01:32.680 --> 00:01:35.079
just as we're getting into the end of the year,

34
00:01:35.079 --> 00:01:36.599
but into the beginning of next year as.

35
00:01:36.519 --> 00:01:40.159
Well, first off, fourth quarter during peak football season. Love

36
00:01:41.280 --> 00:01:46.840
love the analogy. I would say it's almost the unknown, right.

37
00:01:46.879 --> 00:01:49.439
It depends on the month, it depends on the week,

38
00:01:49.519 --> 00:01:51.640
it depends on the quarter. It's kind of been the

39
00:01:51.920 --> 00:01:55.480
whole kind of theme through twenty twenty five, and then

40
00:01:55.480 --> 00:01:59.359
we've talked about this on prior podcasts. With market volatility,

41
00:01:59.439 --> 00:02:04.480
interest rate risk, global unrest, I mean potential recession. We've

42
00:02:04.519 --> 00:02:06.319
heard that time and time again, and that's still kind

43
00:02:06.359 --> 00:02:10.319
of the same theme going into next year. But what

44
00:02:10.400 --> 00:02:12.599
I do feel that a lot of the executives that

45
00:02:12.599 --> 00:02:15.879
we've talked to they've kind of mitigated their businesses going

46
00:02:15.879 --> 00:02:20.319
into twenty twenty six with assumptions as all that stuff relates.

47
00:02:20.759 --> 00:02:22.719
What I would say though, that I have been hearing

48
00:02:22.759 --> 00:02:26.159
an increasing kind of unknown is as it relates to

49
00:02:26.240 --> 00:02:30.439
like cybersecurity and tech risk. The use of AI has

50
00:02:30.479 --> 00:02:33.840
definitely taken off, the leveraging of partners that use AI

51
00:02:33.960 --> 00:02:36.599
and just AI and tech in general. I mean it's

52
00:02:36.639 --> 00:02:39.479
a very antiquated system with all the technology kind of

53
00:02:39.520 --> 00:02:42.080
things in the background that run cybersecurity and so on

54
00:02:42.120 --> 00:02:44.759
and so forth. So I think kind of to sum

55
00:02:44.759 --> 00:02:47.120
it up, it's still unknown. But all of the other

56
00:02:47.120 --> 00:02:49.360
stuff that I outlined as it relates to kind of

57
00:02:49.400 --> 00:02:51.919
the economy things have been mitigated. But there's other stuff

58
00:02:51.960 --> 00:02:54.560
on the forefront as it relates to cybersecurity, use of AI,

59
00:02:55.120 --> 00:02:58.120
regulatory stuff around around all that. What are your thoughts

60
00:02:58.159 --> 00:02:58.560
on that, Barry?

61
00:02:59.120 --> 00:03:02.800
Yeah, I mean, think of of the the the I budget,

62
00:03:02.840 --> 00:03:06.199
the traditional I budget, You've got some allocated for development work,

63
00:03:06.759 --> 00:03:08.719
you know, some allocated for how you're going to move

64
00:03:08.759 --> 00:03:12.280
your business forward, whether it's productivity for your employees or

65
00:03:12.319 --> 00:03:15.960
a better value proposition, very digital value proposition for your

66
00:03:16.039 --> 00:03:18.319
for your members, for your customers out there. But then

67
00:03:18.360 --> 00:03:21.879
cybersecurity is out there as well, and it seems to

68
00:03:21.919 --> 00:03:26.599
be an area of business that is becoming more and

69
00:03:26.719 --> 00:03:29.719
more uncertain and you need to have more and more

70
00:03:29.719 --> 00:03:32.680
protections and more barriers up against that. So, you know,

71
00:03:32.719 --> 00:03:35.400
I think of it as as you and I have

72
00:03:35.479 --> 00:03:40.439
both been previous CEOs, what's what's the right balance of

73
00:03:41.120 --> 00:03:44.879
spend on that, because cybersecurity can shut down your business,

74
00:03:44.879 --> 00:03:48.080
as we've seen in financial services, banks and credit unis

75
00:03:48.120 --> 00:03:53.039
have both had some pretty significant and notorious cybersecurity incidents

76
00:03:53.039 --> 00:03:55.840
in the past couple of years or so. So it's

77
00:03:55.879 --> 00:03:59.360
it's how do you waste or of that that spend

78
00:03:59.400 --> 00:04:04.199
against secure versus moving your business forward using AI and technology.

79
00:04:04.280 --> 00:04:07.120
Yeah, it's it's kind of a reoccurring theme. I don't

80
00:04:07.159 --> 00:04:09.560
know how many pieces of mail I get anymore, not

81
00:04:09.639 --> 00:04:12.240
in financial services, but oh, you may have been a

82
00:04:12.240 --> 00:04:14.680
part of a data breach as it relates to I

83
00:04:14.719 --> 00:04:17.079
went to the doctor for my annual exam and they

84
00:04:17.120 --> 00:04:20.399
have my social and all that fun stuff. Yeah. So

85
00:04:20.560 --> 00:04:22.680
as it relates kind of to the key themes that

86
00:04:22.680 --> 00:04:25.800
we've been hearing for I'd say the past twenty four months,

87
00:04:26.199 --> 00:04:31.480
market volatility fed like just juicing up rates over the

88
00:04:31.480 --> 00:04:36.040
past two years. What are your thoughts like going into

89
00:04:36.040 --> 00:04:38.879
twenty twenty six, Right, we've got a consensus here that

90
00:04:38.879 --> 00:04:40.759
they're going to reduce, but there's still a lot of

91
00:04:40.759 --> 00:04:44.319
pressure on the consumer because in aggregate the rates are

92
00:04:44.360 --> 00:04:47.399
still fairly high across most assets. Like, do you think

93
00:04:47.480 --> 00:04:51.000
the American consumer is going to remain resilient? Are they

94
00:04:51.000 --> 00:04:53.079
going to still be able to have affordability? As it

95
00:04:53.120 --> 00:04:54.839
relates to those rate cuts, are we still going to

96
00:04:54.879 --> 00:04:57.560
see some type of compression there or what are your

97
00:04:57.839 --> 00:04:59.040
what are your thoughts or what have you been hearing

98
00:04:59.079 --> 00:04:59.879
from the executives?

99
00:05:00.079 --> 00:05:03.480
Yeah, I think we're still waiting for all those ray cuts, right,

100
00:05:04.160 --> 00:05:06.560
three different ray cuts of one hundred base points last year,

101
00:05:06.600 --> 00:05:08.879
one rate cut so far this year, perhaps another coming

102
00:05:08.879 --> 00:05:11.600
at the end of October, but none of those have

103
00:05:11.680 --> 00:05:14.079
made their way into the broader interest rate market. The

104
00:05:14.160 --> 00:05:17.160
ten year is still roughly about the same as it

105
00:05:17.240 --> 00:05:21.000
was two years ago. Thirty year, mortgages have come down

106
00:05:21.040 --> 00:05:25.759
a little bit, but still in the mid sixes or so.

107
00:05:25.759 --> 00:05:27.439
So you know, I don't think we're going to see

108
00:05:27.439 --> 00:05:31.120
any sort of huge correction or a positive correction in

109
00:05:31.199 --> 00:05:34.360
housing until we get that thirty year down below six.

110
00:05:34.600 --> 00:05:36.680
That's kind of what I'm hearing from executives out there

111
00:05:36.720 --> 00:05:37.120
right now.

112
00:05:37.279 --> 00:05:37.439
Now.

113
00:05:37.480 --> 00:05:42.040
Having said that, fourth quarter is always a tome of optimism,

114
00:05:42.360 --> 00:05:45.360
So okay, you know, and you know how these things are.

115
00:05:45.519 --> 00:05:49.160
You bring out your magic crystal ball in October and

116
00:05:49.199 --> 00:05:51.199
you try and predict what's going to happen over the

117
00:05:51.199 --> 00:05:54.360
next fifteen months, and nine times out of ten those

118
00:05:54.399 --> 00:05:57.199
predictions are wrong or somewhat flawed, or they never really

119
00:05:57.199 --> 00:06:01.120
came to pass. So your budget, this is playing, has

120
00:06:01.160 --> 00:06:03.639
to be very much a fluid process even throughout the year.

121
00:06:04.879 --> 00:06:07.519
As conditions change, you need to course correct. This is

122
00:06:07.600 --> 00:06:11.040
like navigating your sailboat across choppy seas or rough wars

123
00:06:11.079 --> 00:06:13.639
or calm seas. And I don't think anyone sees calm seas.

124
00:06:13.720 --> 00:06:15.839
No one is saying, oh yeah, twenty six is going

125
00:06:15.920 --> 00:06:17.360
to be a layup. This is going to be easy.

126
00:06:17.360 --> 00:06:20.360
We know exactly what's going to happen. But I do

127
00:06:20.399 --> 00:06:23.959
hear a lot more optimism now than I did maybe

128
00:06:24.000 --> 00:06:28.199
six months ago about the impact of FED funds reductions

129
00:06:28.240 --> 00:06:31.600
actually making their way into the marketplace, that it might

130
00:06:31.680 --> 00:06:34.879
create a little more demand for lending across the board,

131
00:06:34.920 --> 00:06:38.120
across all asset classes, including on the commercial side as well.

132
00:06:38.839 --> 00:06:41.800
But then you know, now there's some credit quality concerns

133
00:06:41.800 --> 00:06:44.720
out there. Perhaps you know, we've seen that delinquencies and

134
00:06:44.759 --> 00:06:48.680
credit cards have started to increase a little bit. Unemployment

135
00:06:48.839 --> 00:06:54.199
still remains low relative to where it had been over

136
00:06:54.240 --> 00:06:56.519
say the past decade or the past two decades or so,

137
00:06:56.879 --> 00:06:59.920
but there's been a little more It's not as it's

138
00:07:00.160 --> 00:07:02.680
softened a little bit. I would say from where it

139
00:07:02.759 --> 00:07:05.439
was maybe a year ago. The number of job openings

140
00:07:05.720 --> 00:07:07.720
are less now than they were a year ago. So

141
00:07:08.120 --> 00:07:11.600
there may be some stress on the American consumer that way,

142
00:07:12.240 --> 00:07:15.959
that perhaps if they're not really feeling all that confident

143
00:07:15.959 --> 00:07:19.720
about their long term or even short term prognosis of

144
00:07:19.759 --> 00:07:23.199
their employment, that they may put off on some spending,

145
00:07:24.319 --> 00:07:28.399
which which would then certainly have some impact on the

146
00:07:28.560 --> 00:07:29.439
demand for loans.

147
00:07:29.639 --> 00:07:32.680
What do you think, and Drew I would echo all

148
00:07:32.720 --> 00:07:35.120
of that, but going back to kind of a topic

149
00:07:35.160 --> 00:07:37.720
that you brought a hand. Credit quality remains to be

150
00:07:38.560 --> 00:07:41.120
kind of an unknown. Things have definitely elevated over the

151
00:07:41.160 --> 00:07:44.199
last eighteen twenty four months. But if you remember, I

152
00:07:44.240 --> 00:07:46.800
don't know, maybe a few episodes ago, we were talking

153
00:07:46.800 --> 00:07:50.079
about financial services in general, whether they be credit unions

154
00:07:50.120 --> 00:07:53.120
and or banks have kind of already tightened, right, and

155
00:07:53.160 --> 00:07:57.360
they started tightening two years ago. Is this the new norm?

156
00:07:57.480 --> 00:08:00.240
And what I've heard from talking to executives and just

157
00:08:00.279 --> 00:08:02.600
even looking at stuff within our own kind of rails

158
00:08:02.720 --> 00:08:06.720
is things are starting to normalize again with appetite across auto,

159
00:08:07.600 --> 00:08:11.079
the appetite for taking personal loans on at the higher

160
00:08:11.120 --> 00:08:14.600
yields as kind of rates are subject to go down.

161
00:08:15.639 --> 00:08:18.040
So what I find very interesting is like this has

162
00:08:18.079 --> 00:08:21.519
been mitigated maybe right from a risk perspective, and there

163
00:08:21.560 --> 00:08:23.279
is that crystal ball if we want to grow, we

164
00:08:23.319 --> 00:08:28.720
want to grow. Where I think this plays into kind

165
00:08:28.720 --> 00:08:31.959
of the growth perspective going into twenty twenty six is

166
00:08:32.000 --> 00:08:34.080
if we do start to decrease rates. One, if you're

167
00:08:34.080 --> 00:08:37.000
borrowing from the FHLB, that's beneficial to you from an

168
00:08:37.000 --> 00:08:41.279
expense standpoint, so you're able to go back out and lend,

169
00:08:41.600 --> 00:08:44.759
maybe not to the thresholds that lending was going on

170
00:08:44.799 --> 00:08:47.080
in twenty twenty one and twenty twenty two. But then

171
00:08:47.080 --> 00:08:51.080
on another kind of subset is your cost of funds

172
00:08:51.120 --> 00:08:52.600
is going to reduce. And I don't know what that

173
00:08:52.720 --> 00:08:58.440
lag time is based on the FED reducing, but as

174
00:08:58.480 --> 00:09:01.919
your deposit products from an API perspective are going to reduce,

175
00:09:02.000 --> 00:09:03.960
your borrowings are going to reduce. That sets you up

176
00:09:04.000 --> 00:09:06.120
for success from a growth perspective. And we're already starting

177
00:09:06.159 --> 00:09:08.200
to see some of that, you know, planning going into

178
00:09:08.200 --> 00:09:10.799
twenty twenty six of let's start bringing back all asset

179
00:09:10.840 --> 00:09:13.240
classes as part of our growth plans.

180
00:09:13.039 --> 00:09:15.440
Right, I mean there is a I think there's a

181
00:09:15.480 --> 00:09:18.080
there's a really good formula out there if you're willing

182
00:09:18.120 --> 00:09:20.799
to take a little bit of risk right now. And

183
00:09:21.080 --> 00:09:24.039
to your point about your your cost of funds, so

184
00:09:24.399 --> 00:09:27.120
your deposit products that you probably overpaid for two years

185
00:09:27.159 --> 00:09:31.759
ago and then probably still overpaid a year later PONM renewal,

186
00:09:32.080 --> 00:09:35.000
you know we are I'm certainly seen across the country

187
00:09:35.000 --> 00:09:38.399
that those those great twelve months CD rates, those eighteen

188
00:09:38.399 --> 00:09:40.440
months CD aren't necessarily as good as they were two

189
00:09:40.480 --> 00:09:43.240
years ago. For a good reason. Right, part of it

190
00:09:43.279 --> 00:09:46.399
is is less need for that supply. And the other

191
00:09:46.440 --> 00:09:48.799
part is that we have seen FED funds reduced rates

192
00:09:48.799 --> 00:09:51.240
and so on, so there's less pressure on the deposit

193
00:09:51.320 --> 00:09:56.200
side and less need to sort of try and step

194
00:09:56.320 --> 00:09:58.200
up your your amount deposits in order to cover your

195
00:09:58.279 --> 00:10:01.320
loan demand. But you've also still have high loan yields.

196
00:10:01.399 --> 00:10:04.799
So to your point, if if you've already sort of

197
00:10:04.840 --> 00:10:09.639
accounted for the increased risk credit risks out there and

198
00:10:09.679 --> 00:10:11.840
that's in your pricing, you can get some pretty good

199
00:10:11.879 --> 00:10:16.360
yields right now across asset classes before and almost almost

200
00:10:16.399 --> 00:10:19.799
get ahead of the reduction in rates. So there are

201
00:10:19.879 --> 00:10:22.440
some progressive lenders out there right now that I'm seeing

202
00:10:22.639 --> 00:10:25.320
actually ramping up. So where some start to wind down

203
00:10:25.399 --> 00:10:27.600
into the fourth quarter and say, oh, no, we're all good.

204
00:10:27.879 --> 00:10:30.919
We're kind of closing up shop about Thanksgiving or early December.

205
00:10:31.159 --> 00:10:33.559
Some are going, no, let's hit the gas and let's

206
00:10:33.679 --> 00:10:36.279
let's go out and get some real good loan income

207
00:10:36.279 --> 00:10:39.799
momentum going into twenty twenty six. So then that first quarter,

208
00:10:40.399 --> 00:10:43.200
you know you're actually at or ahead of what your

209
00:10:43.240 --> 00:10:46.559
expectations are, and it would help to mitigate any other

210
00:10:46.759 --> 00:10:49.240
choppy waters that we do have through the rest of

211
00:10:49.240 --> 00:10:53.480
twenty twenty six, if DQ goes up, if credit quality declines,

212
00:10:53.559 --> 00:10:58.240
if rates don't actually reduce as expected, if inflation starts

213
00:10:58.240 --> 00:10:59.879
to tick up a little bit. That's something else we

214
00:10:59.879 --> 00:11:03.200
have been talked about. I mean, what are your what

215
00:11:03.240 --> 00:11:05.200
are your lenders hearing about inflation or where are they

216
00:11:05.240 --> 00:11:05.960
thinking about it?

217
00:11:06.159 --> 00:11:08.120
I was gonna go back like on all of that, Like,

218
00:11:08.519 --> 00:11:10.960
I don't think the formula is ever going to change though, right,

219
00:11:12.039 --> 00:11:14.919
You're going to diversify your portfolio based on risk adjustive returns.

220
00:11:14.919 --> 00:11:18.320
It's what everybody does going into each quarter each year,

221
00:11:18.799 --> 00:11:20.360
just a matter of where are you going to put

222
00:11:20.360 --> 00:11:23.919
your eggs in each basket. Then going back to inflation,

223
00:11:24.120 --> 00:11:27.559
like it's been something that's been discussed of the unknown

224
00:11:27.600 --> 00:11:30.600
again for quite some time. Nothing's really come of it.

225
00:11:30.720 --> 00:11:34.000
I mean there's a been volatility, there's a spike here

226
00:11:34.039 --> 00:11:36.120
and then it goes down. It depends on, you know,

227
00:11:36.159 --> 00:11:38.600
what's going on in the economy. But I think that

228
00:11:39.519 --> 00:11:41.759
of the executives that I talk to in the lending space,

229
00:11:42.080 --> 00:11:44.840
they're they're they're kind of okay with where everything sits

230
00:11:44.919 --> 00:11:46.960
right now, and and don't think much is going to

231
00:11:47.039 --> 00:11:49.799
change or and or impact I mean current state. The

232
00:11:50.120 --> 00:11:53.200
only kind of with government shutdown, right is the unknown

233
00:11:53.240 --> 00:11:55.440
there and how that's going to impact what's the longevity

234
00:11:55.720 --> 00:11:59.559
outside of that. I don't think inflation is really a concern.

235
00:11:59.679 --> 00:12:01.720
It's just something that's kind of in the forefront that

236
00:12:02.159 --> 00:12:05.120
will continue to monitor. But again, no real concern from

237
00:12:05.159 --> 00:12:06.559
who I'm talking to right now.

238
00:12:06.600 --> 00:12:09.399
We're only nine or ten months into this administration. There's

239
00:12:09.399 --> 00:12:12.600
been tariff concerns that I don't know, have they come

240
00:12:12.600 --> 00:12:15.440
to pass or not drew. Like I don't necessarily feel

241
00:12:15.440 --> 00:12:17.879
it as a consumer, but then I may not be

242
00:12:17.960 --> 00:12:22.399
representative of the sort of average consumer. But people are

243
00:12:22.440 --> 00:12:28.200
still buying TVs and and still buying imported vehicles, and

244
00:12:28.200 --> 00:12:30.200
and I don't really see that changing a whole lot.

245
00:12:30.320 --> 00:12:30.919
What do you see?

246
00:12:31.279 --> 00:12:34.200
Yeah, that's a great point, Like, let's kind of shift

247
00:12:34.240 --> 00:12:39.679
here consumer behavior, right, the American consumer. We've seen data

248
00:12:39.759 --> 00:12:42.440
in the past, you know, a few years where still

249
00:12:42.480 --> 00:12:47.879
coming out of the COVID boom, they're purchasing to your point, TVs, hospitalities,

250
00:12:48.080 --> 00:12:51.799
maybe stuff that they don't really need. But in like

251
00:12:52.039 --> 00:12:56.240
recent findings, households are starting to tighten their spending. The

252
00:12:56.279 --> 00:13:00.399
consumer savings rate is kind of remain relatively flatt You

253
00:13:00.440 --> 00:13:03.080
don't see as much, you know, spending as it relates

254
00:13:03.080 --> 00:13:06.120
to durables. But then I kind of often think as

255
00:13:06.159 --> 00:13:09.080
it relates to all of that, like we're at airports

256
00:13:09.159 --> 00:13:11.960
quite often and they are packed. We go on vacation

257
00:13:12.080 --> 00:13:15.559
and the hotels are packed anytime that we're traveling for

258
00:13:15.720 --> 00:13:18.279
pleasure or work. I don't understand the whole like the

259
00:13:18.320 --> 00:13:21.000
tightening and non spending when we're seeing it. So I

260
00:13:21.039 --> 00:13:24.080
really don't know what the consumer behavior looks like in

261
00:13:24.480 --> 00:13:27.960
that aspect. Maybe it's different. Cohorts are you know, still

262
00:13:28.039 --> 00:13:31.480
from from a uh from having a more more funds

263
00:13:31.480 --> 00:13:33.159
and things of that nature. Are ones that sat on

264
00:13:33.240 --> 00:13:35.440
savings longer than others are starting to kind of come

265
00:13:35.440 --> 00:13:38.519
out of the woodwork as it relates. But I can't

266
00:13:38.559 --> 00:13:41.440
pinpoint the consumer behavior as it relates to what's going

267
00:13:41.480 --> 00:13:42.440
on in the macro right now.

268
00:13:42.639 --> 00:13:46.559
Yeah, that's a good point. It's it's it's it's befuddling

269
00:13:46.600 --> 00:13:47.039
a little bit.

270
00:13:47.120 --> 00:13:47.279
Right.

271
00:13:47.399 --> 00:13:50.440
We all expected that the consumer would stop spending, and

272
00:13:50.480 --> 00:13:53.559
the consumer hasn't necessarily stopped spending, maybe at the rate

273
00:13:53.639 --> 00:13:59.080
that we expected. Uh, But you talk about going to

274
00:13:59.200 --> 00:14:02.240
airports and hotel and so on spending on experiences. We

275
00:14:02.279 --> 00:14:05.240
saw that spike up after COVID, where people were stuck

276
00:14:05.279 --> 00:14:06.759
in their homes for a year and a half or

277
00:14:06.759 --> 00:14:08.840
two years, and then finally we're able to go out

278
00:14:08.840 --> 00:14:10.960
and said, well, yeah, I've already bought my TVs, I've

279
00:14:10.960 --> 00:14:14.279
bought my durable goods. Let's go out and let's experience

280
00:14:14.360 --> 00:14:16.559
some things. And that has not slowed down at all.

281
00:14:17.279 --> 00:14:20.279
Cruise ships are still packed and more and more of

282
00:14:20.279 --> 00:14:22.879
that happening. So you know, if you think of that

283
00:14:23.080 --> 00:14:25.600
from a macro perspective of what that's going to mean

284
00:14:25.639 --> 00:14:28.519
for our lenders going forward, it's probably a good sign.

285
00:14:29.279 --> 00:14:33.519
We still haven't seen sort of the typical interruptions of

286
00:14:33.559 --> 00:14:38.279
the economy that you would see before a recession. You

287
00:14:38.320 --> 00:14:41.000
and I were both in the industry with a great

288
00:14:41.039 --> 00:14:44.799
financial recession. I mean we felt it probably a good

289
00:14:44.799 --> 00:14:48.039
twelve to eighteen months before everything kind of burned down

290
00:14:48.200 --> 00:14:52.200
as it happened, But we were starting to see it

291
00:14:52.240 --> 00:14:55.200
in our delinquency. We started to see it talking to

292
00:14:55.480 --> 00:14:58.240
our collectors. They're the ones, they are the canaries in

293
00:14:58.240 --> 00:15:00.639
the coal mine, they are the ones who is saying, yeah,

294
00:15:00.639 --> 00:15:02.960
we're hearing a lot of stress out there, and those

295
00:15:02.960 --> 00:15:05.840
conditions just don't really exist right now, And from talking

296
00:15:05.879 --> 00:15:10.039
to blinding partners across the country, they're not really seeing

297
00:15:10.039 --> 00:15:13.919
that either at all. So the consumer has been resilient,

298
00:15:14.919 --> 00:15:17.919
continues to spend, and should continue to spend unless there's

299
00:15:17.960 --> 00:15:21.120
some sort of a massive economic disruption, which is so far,

300
00:15:21.200 --> 00:15:23.399
so good, We thankfully haven't seen anything like that.

301
00:15:23.559 --> 00:15:27.840
Or how much of this is the American consumer buying

302
00:15:27.919 --> 00:15:31.679
said durables at an elevated rate as it attributes to

303
00:15:31.679 --> 00:15:33.960
buy now, pay later. You can go on Amazon, you

304
00:15:34.000 --> 00:15:37.039
can go on to Walmart's website and buy TVs and

305
00:15:37.480 --> 00:15:41.000
things of that nature and make four monthly installment payments

306
00:15:41.000 --> 00:15:43.919
of fifty dollars. I wonder if the American consumer is

307
00:15:44.279 --> 00:15:47.279
leveraging buy now, pay later more than the traditional credit

308
00:15:47.279 --> 00:15:49.639
card or unsecured person alone or things of that nature

309
00:15:49.679 --> 00:15:51.399
to finance some of that stuff.

310
00:15:51.200 --> 00:15:53.960
Which is opaque to most lenders because it doesn't show

311
00:15:54.080 --> 00:15:58.919
up in credit reports and will eventually catch up with you, you

312
00:15:58.840 --> 00:16:03.919
would think, right, but so far, so good. Have you

313
00:16:04.000 --> 00:16:07.919
used that yourself. I'm just curious because I didn't use

314
00:16:07.960 --> 00:16:10.000
it a couple of years ago. It just kind of

315
00:16:10.039 --> 00:16:12.840
made sense and the opportunity came up and I thought, well,

316
00:16:12.879 --> 00:16:15.960
why spend six hundred dollars on this item that I

317
00:16:16.000 --> 00:16:17.879
was purchasing when I could do it one fifty over

318
00:16:17.960 --> 00:16:20.080
four months. This kind of kind of made sense coming

319
00:16:20.120 --> 00:16:21.840
from the same credit card which I pay off every

320
00:16:21.840 --> 00:16:26.120
month anyhow, so why not as a consumer. It just

321
00:16:26.200 --> 00:16:29.960
kind of ticked those boxes and felt like something that

322
00:16:30.080 --> 00:16:33.200
I could use right now. Now did it really sort

323
00:16:33.200 --> 00:16:36.759
of change my financial picture? Probably not all that much,

324
00:16:37.120 --> 00:16:39.120
but actually made me feel a little bit better about

325
00:16:39.159 --> 00:16:41.080
that purchase, and I had to lay out the whole

326
00:16:41.120 --> 00:16:42.480
six under myself at that time.

327
00:16:42.600 --> 00:16:44.519
Maybe I need to become one with the times and

328
00:16:44.960 --> 00:16:47.320
test out the buy now, pay later, I've not I've

329
00:16:47.320 --> 00:16:48.279
not done that yet.

330
00:16:48.279 --> 00:16:50.200
Well, you know you can DoorDash something at lunch and

331
00:16:50.240 --> 00:16:52.320
probably buy now and pay that one later too.

332
00:16:52.200 --> 00:16:54.519
So they all try that out tomorrow.

333
00:16:55.519 --> 00:16:58.360
So let's shift a little bit back into Upstart a

334
00:16:58.399 --> 00:17:01.039
little bit, so you know, Upstarted employees a lot of tools,

335
00:17:01.080 --> 00:17:04.759
predictive sort of tools to try and help our lenders

336
00:17:04.880 --> 00:17:09.440
understand sort of what the macroeconomy is and perhaps what

337
00:17:09.480 --> 00:17:12.440
that means for their own portfolio of loans that they've

338
00:17:12.440 --> 00:17:14.559
originate today and then the ones that they're going to

339
00:17:14.559 --> 00:17:17.279
originate down the road. And I'm talking across all asset classes,

340
00:17:17.279 --> 00:17:19.680
because it's not just personal loans now, it's auto loans,

341
00:17:19.680 --> 00:17:23.160
it's helock that sort of thing. So as you talk

342
00:17:23.240 --> 00:17:25.759
to your lending partners out there, you know, what's her

343
00:17:25.799 --> 00:17:29.119
confidence are they getting from understanding that these tools are

344
00:17:29.119 --> 00:17:31.400
available for them, and it's just giving them a lot

345
00:17:31.480 --> 00:17:34.319
more transparency into the decision making that they have to

346
00:17:34.359 --> 00:17:35.119
do for their business.

347
00:17:35.240 --> 00:17:39.000
I think in my conversations it's it's not for lack

348
00:17:39.039 --> 00:17:44.359
of a better term, with rising delinquency, rising defaults, and things

349
00:17:44.359 --> 00:17:47.960
of that nature, that there's a scaredness associated with it.

350
00:17:48.039 --> 00:17:50.559
I think with leveraging these tools, it allows them to

351
00:17:50.839 --> 00:17:54.720
better re forecast across all assets, whether it relates to

352
00:17:54.839 --> 00:17:59.559
unsecured or asset backed type of loans, as well as

353
00:17:59.559 --> 00:18:01.559
it relates to CECIL and the overall impact that it

354
00:18:01.599 --> 00:18:04.119
has towards their expense and in their bottom line at

355
00:18:04.119 --> 00:18:06.519
the end of the day. Whereas if you if you rewind,

356
00:18:06.559 --> 00:18:09.160
you know three years ago, three years or so ago,

357
00:18:09.240 --> 00:18:11.799
one CECIL had to be adopted. There was a lot

358
00:18:11.799 --> 00:18:15.319
of unknowns. We didn't know how to refecast and using

359
00:18:15.359 --> 00:18:18.680
these tools, it allows for here's the current state of origination,

360
00:18:18.759 --> 00:18:21.599
whether it be month one or quarter one, and then

361
00:18:21.599 --> 00:18:24.359
what does it look like from a loss projection standpoint

362
00:18:24.440 --> 00:18:26.920
on that six, nine, twelve months down the line, And

363
00:18:26.920 --> 00:18:31.079
how can I reallocate my reserves into my A triple

364
00:18:31.160 --> 00:18:33.079
L account and go from there. So I think having

365
00:18:33.160 --> 00:18:36.839
those tools has helped better define the refecasting methodologies across

366
00:18:36.880 --> 00:18:39.799
all assets to help be set up for success as

367
00:18:39.799 --> 00:18:41.920
it relates to expenses and an overall net income.

368
00:18:42.039 --> 00:18:44.880
Yeah, I mean, what a massive change that technology has

369
00:18:45.000 --> 00:18:49.319
given for CFOs and executives trying to sort of forecast

370
00:18:49.400 --> 00:18:53.279
things out. You can always you could have always looked

371
00:18:53.279 --> 00:18:55.720
at a point in time of sort of the overall

372
00:18:55.799 --> 00:18:59.759
quality of your portfolio, both from from from a credit

373
00:18:59.799 --> 00:19:02.640
risk perspective, but then also sort of forward the forward

374
00:19:02.640 --> 00:19:05.440
income that should be getting from it. But now you've

375
00:19:05.480 --> 00:19:09.400
got so much modeling ability at your fingertips to be

376
00:19:09.440 --> 00:19:11.720
able to sort of look at different scenarios. And again,

377
00:19:12.079 --> 00:19:13.400
you know, if you think the economy is going to

378
00:19:13.480 --> 00:19:16.920
be good, great, or poor, you could forecast all those

379
00:19:16.920 --> 00:19:19.039
three scenarios with really just just a click of a

380
00:19:19.039 --> 00:19:21.559
couple of buttons where that would have been such a

381
00:19:21.599 --> 00:19:24.440
massive job for me to do back in my day

382
00:19:24.480 --> 00:19:26.839
when I was running credit Union for you as well, Drew,

383
00:19:27.599 --> 00:19:30.279
it's just that much easier now to sort of model

384
00:19:30.319 --> 00:19:34.400
that out and and and determine well from those models,

385
00:19:34.880 --> 00:19:36.559
what directions should we take and do we need to

386
00:19:36.559 --> 00:19:38.559
course correct things with our business? Do we need to

387
00:19:38.880 --> 00:19:42.119
tighten or loosen thats the case may be. So it's

388
00:19:42.200 --> 00:19:45.240
it's fascinating just and enlightening to see how this has

389
00:19:45.279 --> 00:19:49.400
happened over time, with the with the quality of of

390
00:19:49.400 --> 00:19:50.640
of the tools that are out there for you.

391
00:19:50.720 --> 00:19:55.480
Yeah, the old school Excel spreadsheet forecasting methodology, when you

392
00:19:55.519 --> 00:19:58.359
plug six numbers in you get an outputs as a

393
00:19:58.400 --> 00:20:01.119
thing of the past, right. I think Another thing though,

394
00:20:01.200 --> 00:20:04.519
as it relates to these these types of tools, is

395
00:20:04.559 --> 00:20:07.119
it allows for to your point you said, Q four

396
00:20:07.200 --> 00:20:09.599
is the crystal ball, We're going into twenty six and

397
00:20:09.680 --> 00:20:12.160
we want to do X, y Z from a lending perspective,

398
00:20:12.240 --> 00:20:14.839
and then things shifting Q one, Are they shifting? Q two?

399
00:20:15.440 --> 00:20:17.759
Being able to have these tools at your fingertips allows

400
00:20:17.799 --> 00:20:20.480
you to reallocate your portfolio. Let's say you were heavily

401
00:20:20.480 --> 00:20:23.599
weighted in helock maybe second weighted in the auto and

402
00:20:23.640 --> 00:20:26.240
then personal loans, credit cards, on and so forth, and

403
00:20:26.319 --> 00:20:30.440
as things changed in the macro, as delinquencies rise, if

404
00:20:30.480 --> 00:20:33.799
there's margin compression and you know, the asset backed type

405
00:20:33.799 --> 00:20:36.960
of loans, you can reallocate your your strategy because you

406
00:20:37.039 --> 00:20:39.039
kind of know what's going on in real time or

407
00:20:39.119 --> 00:20:40.839
maybe with a three month lag. So I think it

408
00:20:40.880 --> 00:20:43.960
definitely helps in doing that because I remember back in

409
00:20:44.000 --> 00:20:45.960
my day, we would set budget and we would manage

410
00:20:45.960 --> 00:20:47.920
to budget for that full year, and we really didn't

411
00:20:47.960 --> 00:20:52.200
know what was going to change right away. So you

412
00:20:52.279 --> 00:20:53.519
got to the end of the year and you're like, up,

413
00:20:53.559 --> 00:20:55.400
we either hit budget or we were a little bit off,

414
00:20:55.400 --> 00:20:57.559
and the board's wondering why were we off or why

415
00:20:57.599 --> 00:20:59.799
were we over? So I think having those tools definitely

416
00:20:59.839 --> 00:21:02.559
help kind of the real time decisions that the executives

417
00:21:02.559 --> 00:21:04.480
were making across the lending ecosystem.

418
00:21:04.599 --> 00:21:06.599
Yeah, Like think back Q one of twenty three when

419
00:21:06.640 --> 00:21:11.160
there was a liquidity crunch. You know, think of your

420
00:21:11.440 --> 00:21:13.720
lending partners, the credit unions and banks you talked to

421
00:21:13.759 --> 00:21:18.240
across the country, those that had the ability to sort

422
00:21:18.240 --> 00:21:21.119
of course correct quickly or had already had the foresight

423
00:21:21.480 --> 00:21:26.440
to think of those sort of scenarios where you may

424
00:21:26.480 --> 00:21:28.440
need course correct. I mean, they were able to move

425
00:21:28.480 --> 00:21:32.119
pretty fast, and they were able to get deposit products

426
00:21:32.119 --> 00:21:35.440
out there and rates out there that would quickly allow

427
00:21:35.480 --> 00:21:37.440
them to get a little more liquidity. And I did

428
00:21:37.440 --> 00:21:40.640
talk unfortunately some lending partners who were sort of stuck

429
00:21:40.680 --> 00:21:43.160
with well, now what you know, where do we go

430
00:21:43.200 --> 00:21:47.119
from here? And and almost some inertia because of that,

431
00:21:47.240 --> 00:21:50.119
maybe because they they didn't take the time to sort

432
00:21:50.119 --> 00:21:52.119
of run those alternate scenarios where they didn't have the

433
00:21:52.160 --> 00:21:54.119
tools at their disposal or didn't know how to use

434
00:21:54.160 --> 00:21:58.039
those tools. So those executives on the sharper edge of

435
00:21:58.079 --> 00:22:00.680
the curve, with those tools available and the ability to

436
00:22:00.759 --> 00:22:03.400
use them, I think we're able to sort of to

437
00:22:03.799 --> 00:22:07.240
manipulate their balance sheet and their offerings out to their

438
00:22:07.920 --> 00:22:11.319
consumers faster and be able to sort of mitigate any

439
00:22:11.640 --> 00:22:15.480
any sort of risks of that liquated crunch that others

440
00:22:15.519 --> 00:22:16.319
had to experience.

441
00:22:17.039 --> 00:22:19.480
Maybe it's kind of a blessing in disguise. I mean,

442
00:22:19.640 --> 00:22:22.079
no one really is going to rewind back and say

443
00:22:22.480 --> 00:22:26.680
I enjoyed lending from twenty twenty two to twenty twenty four. Right,

444
00:22:27.759 --> 00:22:31.960
But I remember sitting with examiners and they're wanting you

445
00:22:32.000 --> 00:22:34.279
to do a three hundred basis point rake shock. This

446
00:22:34.359 --> 00:22:36.160
is never going to happen. It's never going to happen.

447
00:22:36.200 --> 00:22:37.440
And here it happened.

448
00:22:37.599 --> 00:22:38.079
It happened.

449
00:22:38.279 --> 00:22:40.599
A lot of credit unions. They had to plan for

450
00:22:40.640 --> 00:22:42.839
scenarios like this because it happened. And while they were

451
00:22:42.880 --> 00:22:46.039
planning in you know, prior years in case there was

452
00:22:46.079 --> 00:22:48.920
a three hundred basis point shock. Now what's happened. There's

453
00:22:49.319 --> 00:22:53.440
risk assessments put in place, there's policies and procedures if

454
00:22:53.480 --> 00:22:55.880
scenario X, Y and Z happens. They know how they're

455
00:22:55.880 --> 00:22:58.160
going to kind of translate their business and be more

456
00:22:58.200 --> 00:23:00.680
resilient as it relates to any type of unrest. So

457
00:23:01.039 --> 00:23:02.839
as much as again is like I wouldn't want to

458
00:23:02.839 --> 00:23:05.359
go back to that, like maybe it was a blessing disguise.

459
00:23:05.759 --> 00:23:08.440
Yeah, I mean it actually took some of the theory

460
00:23:08.480 --> 00:23:11.039
and put into practice. It's the one hundred year flood

461
00:23:11.079 --> 00:23:12.960
sort of thing. Right, Oh, this will never happen, Well

462
00:23:13.079 --> 00:23:15.519
every hundred years it does, right, So this is why

463
00:23:15.559 --> 00:23:17.720
you need to sort of protect to protect things that way,

464
00:23:18.440 --> 00:23:20.839
all right, Drew that was a good conversation today. Thanks

465
00:23:20.839 --> 00:23:23.440
for taking the time to sort of go through things

466
00:23:23.839 --> 00:23:26.359
on the economy and where we think things will be going.

467
00:23:26.680 --> 00:23:28.880
You know, if I'm a CEO watching this today and

468
00:23:28.960 --> 00:23:32.359
listening today, what would be a key takeaway for me

469
00:23:33.000 --> 00:23:36.440
to take to my team and to my board going forward.

470
00:23:36.480 --> 00:23:39.119
I think if I put my CEO hat back on,

471
00:23:39.400 --> 00:23:42.240
the number one theme from today would be scenario analysis.

472
00:23:42.240 --> 00:23:44.960
And reason being is you never know what's going to

473
00:23:44.960 --> 00:23:47.480
get thrown at you, whether it's in quarter and month

474
00:23:47.519 --> 00:23:51.200
and year. Setting yourself up for success in the twenty

475
00:23:51.240 --> 00:23:55.240
twenty six and beyond through either capital and funding models,

476
00:23:55.359 --> 00:24:00.839
risk mitigation, cecil methodologies, regulatory environment changes, so on and

477
00:24:00.839 --> 00:24:03.440
so forth. I think that is the number one scope

478
00:24:03.519 --> 00:24:06.599
of what I would recommend as part of our conversation today.

479
00:24:06.880 --> 00:24:09.680
Yeah, so just trying to get ahead of potential scenarios

480
00:24:09.759 --> 00:24:11.839
that that could happen in twenty six. So you're going

481
00:24:11.880 --> 00:24:14.880
to have your baseline expectation and this is how we're

482
00:24:14.880 --> 00:24:17.279
going to perform, and these are the activities that we're

483
00:24:17.279 --> 00:24:19.799
going to do to get to that performance. But here's

484
00:24:19.839 --> 00:24:22.240
what happens. If things go sideways, that things go north,

485
00:24:22.279 --> 00:24:25.359
that things go south right. And you know, we always

486
00:24:25.400 --> 00:24:29.759
tend to think about about scenario analysis of the bad.

487
00:24:29.920 --> 00:24:31.480
You know what happens with the bad, But what if

488
00:24:31.519 --> 00:24:34.599
it's good? You know, what if what if unemployment gets better?

489
00:24:34.680 --> 00:24:38.559
What if inflation is fully tamed? What if rates do decline?

490
00:24:38.599 --> 00:24:41.400
That we see an abundance now of consumer spending going out,

491
00:24:41.599 --> 00:24:43.599
housing comes back, and so how are we going to

492
00:24:43.640 --> 00:24:45.640
be on top of that and make sure our teams

493
00:24:45.640 --> 00:24:47.920
are ready to leverage that. And part of that could

494
00:24:47.920 --> 00:24:51.079
be insert of diversification, not just of your portfolio, but

495
00:24:51.240 --> 00:24:54.400
also of your funny mechanisms as well. You reference before

496
00:24:54.440 --> 00:24:58.440
with FHLB potentially lowering rates, which is going to decrease

497
00:24:58.480 --> 00:25:01.279
my cost of funds. Well, maybe a reduction in interest

498
00:25:01.319 --> 00:25:03.759
rates on a broader term is also going to decrease

499
00:25:04.000 --> 00:25:07.599
my deposit costs. And as there's a race for deposits,

500
00:25:07.799 --> 00:25:10.519
as it's going downward, maybe there's opportunities for me to

501
00:25:10.799 --> 00:25:14.279
take that up as well. Okay, and one bonus last

502
00:25:14.359 --> 00:25:18.920
prediction then, drew college football playoff. We're in the fourth quarter,

503
00:25:19.279 --> 00:25:21.920
We're coming up against it. Who do you have?

504
00:25:22.079 --> 00:25:23.920
I would have to say, as much as it pains

505
00:25:23.960 --> 00:25:26.200
me that I wish I could say the Clemson Tigers.

506
00:25:26.200 --> 00:25:28.279
As much as I like them, I'm gonna have to

507
00:25:28.359 --> 00:25:31.880
go with after watching this past week's game, the Indiana Hoosiers.

508
00:25:32.079 --> 00:25:33.720
Wait, I'm not talking March Madness.

509
00:25:33.799 --> 00:25:37.599
I'm talking college football national champions Indiana Hoosiers.

510
00:25:37.799 --> 00:25:41.559
Okay, well, that's a very bold prediction, and let's time

511
00:25:41.559 --> 00:25:43.160
stamp this and make sure that we come back to

512
00:25:43.200 --> 00:25:45.119
Drew later in the year to see where that's at.

513
00:25:45.440 --> 00:25:48.480
I'm going to front run and say Ohio State, partly

514
00:25:48.519 --> 00:25:51.200
because their rank number one right now and partly because

515
00:25:51.480 --> 00:25:53.640
I know it really irks Drew to pick Ohio State

516
00:25:53.759 --> 00:25:56.960
because he's not an Ohio State fans. So anyhow, there

517
00:25:57.000 --> 00:25:59.920
you go. That's all for this episode of Leers and lending.

518
00:26:00.359 --> 00:26:02.599
The economy will keep moving, but what matters most is

519
00:26:02.599 --> 00:26:05.599
how leaders adapt. Thanks for listening, and don't forget to

520
00:26:05.640 --> 00:26:07.880
subscribe so you never miss a conversation that helps you

521
00:26:07.960 --> 00:26:09.200
stay ahead. We'll see you next.

522
00:26:09.559 --> 00:26:09.880
Thank you,