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Things are getting better and better, worse and worse, faster and faster simultaneously.

Welcome to the most widely watched in the longest running dialog on Carolina business policy and public affairs in the Carolinas, and the winds of change are certainly blowing in.

The velocity of that change is dizzying.

It's not exactly the same, but economics or economists refer to a very similar concept as creative destruction.

So where are we headed in the Carolinas?

We will engage our expert panel later and also is, in the interest of full disclosure, our guest from Truliant, who is an underwriter on this program, Todd Hall, will join us again.

Stay with us.

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On this edition of Carolina Business Review John Hood, from the John William Pope Foundation Dr. Joseph C. Von Nesson, of the Darla Moore School of Business, University of South Carolina And special guest Todd Hall, President and CEO of Truliant Federal Credit Union Hello.

Welcome again to our program.

Happy we can.

We could almost say happy summer, happy graduation.

It is the season.

You know, John, I don't know if this is a necessarily a fair question, but you're kind of an economist, right?

Hire a. Humanist economist.

Is that a fair?

Is that a fair assumption to say what what's going on in policy?

Is creative destruction?

Well, there's certainly some destruction going on.

Some of it might turn out to be creative.

I mean, we've we've got public policy actions.

Obviously, the administration and the tariffs is part of the picture here that is affecting industries and different sectors and different companies have different effects.

A few are positive a lot or negative.

Some are very negative.

But you've also got some things underneath that aren't necessarily about policy, but about, for example, artificial intelligence, which is absolutely a creative destruction process I think that we are already seeing.

I think people have maybe under they if overstated how powerful these tools are yet I think they're pretty powerful, but they're not quite there yet.

But they've understated how much they're already affecting business decisions and even hiring decisions on the labor market.

So no way to know what that effect is based on.

Tariffs are blowing up the economy.

I mean, that's the tariff part is the very public part.

And believe me, I'm not denying that.

It's a very important matter that has it's unfolding and affecting lots of people.

Just saying.

There's some other factors like AI, that are happening a little bit further away from the policy world, that are also having a significant economic effect.

Joey, our tariffs blowing up the economy.

Well, we do see a slowdown that is is coming.

And in a sense, we're in the calm before the storm.

But the problem is that we don't know the size of the storm, and we don't know if it's going to turn and partially go back out to sea.

If we see some type of trade deal that is that is made, we do anticipate slower growth in the second half of the year, but so far this economy has held up very well through early April.

GDP in the first quarter, even though it was slightly negative, that was mostly due to the increase in inventory levels as companies were, importing more goods to get ahead of these tariffs.

But if you adjust for that, GDP growth was actually around 2%.

The labor market has also held up pretty well again through early April.

So the economy has been resilient so far.

But the key metric going forward, I think is inflation.

If you wanted to pick one measure to assess how much the economy may slow in the second half of the year, if these tariffs do translate into a significant increase in inflation, then we're going to have more of an effect in the second half of 2025.

So John is is Joey makes the case for the economic data.

And there's this there's this I'm going to call it a delta, a really big gulf between how people and businesses feel and what the economic data actually says.

Is there a correlation there?

Does.

Do they eventually come together, or is this just going to be is this going to be a recession in confidence only maybe.

Well, you know, keep in mind that economic data are always backward looking.

Yeah.

And expectations are by definition forward looking.

So they don't have to be Congress but eventually one affects the other.

So people are reacting like if we talk about the GDP numbers and the fact that, there was an underlying 2% trend, but companies were expanding their inventories.

Yeah, that's a real event that's going to affect the future.

And in fact, they can't expand inventories enough to handle, for example, the Christmas season.

If companies that typically buy in the spring or summer for the Christmas season are facing these significant tariffs and they're not pause, they resume.

That's going to have real world effects, including on prices, because you're going to have, you know, the classic definition of too much money to chase and too few goods.

So that the expectations are critically important.

And in fact, people's uncertainty about what's going to happen is itself a major factor here.

The the what I would call the uncertainty tax is already in place.

The tariffs may not all being charged already, but the ones in China are some of the ones in Canada.

Mexico are.

But the prospect of tariffs and who knows what they are and who knows when they're going to apply.

That's an uncertainty.

Tax there reduces business confidence, willingness to make long term investments and may even in fact consumer confidence and willingness to purchase certain kinds of goods.

Is a drop in confidence, a self-fulfilling prophecy.

It certainly can be.

And I think there's another important component about the lack of confidence this year, because even though it has gone down in 2025 because of the uncertainty, it is not unique to 2025.

We've seen low consumer confidence going all the way back to 2020.

And that's something that we don't hear is often.

And the reason for that is inflation, that consumers are still worse off from a purchasing power perspective than they were on the eve of the pandemic in 2019.

And to put a number on that, prices have risen overall by about 25% since the pandemic began.

Wages have only increased by about 20%.

And one thing that you can see in the in the actual data for the Consumer confidence Index is that the biggest drop occurred between 2021 and 2022, when inflation saw its biggest increase more so than in 2020 itself, which is striking given all the uncertainty and we didn't know what was going on.

We had no vaccine at all of that.

So so inflation, I think, is still a powerful explanatory force as to why we've seen this persistent lack of confidence over the last several years.

Dwayne Parrish South Carolina Parks, Recreation and Tourism whit Tuttle from, visit North Carolina were on this program just a couple of weeks ago.

And actually, both of them said the tourism, which is the single biggest industry in both states, or at least, tourism somewhere in there, has seen a decline in the first quarter.

And they said it's a real decline.

It's the first time we've had one of those in a long time.

They didn't seem alarmed, but they were serious about it.

John, do you think that that is a harbinger of a larger economy, or do you think, you know, the travel season is going to be what it is?

There are multiple trends, my understanding and talking to people in the industry, there's some very specific trends, like fewer people from Canada wanting to travel to United States.

And Canadians are not like the gigantic, share of the tourism market in places like the Carolinas.

But it's significant.

And frankly, it's a kind of anti-america.

Well, maybe we'll just vacation in Europe or Mexico or somewhere else.

But in addition to that very specific thing about the country of Canada, to some extent European countries that are angry, maybe some of the population is angry right now.

There's also this question, again, about confidence, about consumers thinking about the next six months, 12 months, 18 months.

They were going to take a long trip to the mountains, maybe now to a weekend.

That sort of effect, is not specific to a particular country or specific sentiment.

It's more of a generalized concern about their own household budgets not yet recovered from this sense of their loss of purchasing power during the last five years.

Okay, interesting.

We've got about a minute left, and I want to broach the idea that both North and South Carolina, the last several years have had budget surpluses.

It's pretty healthy, right?

And built in the billions of dollars, plus plus.

Joe, what do you think that's going to continue?

Well, we look back on this year and say, well, that was the end of budget surpluses for a while.

How are the states going to manage that?

Well, I think we certainly are going to see a slowdown in growth this year.

I don't think there's any question about that.

So we've got to look at take a more conservative approach I think going forward.

We don't know what these impacts are going to be ultimately of the tariffs.

Again I think inflation is the key metric for that.

But regardless, I think we have to to be more conservative in any type of projection that the that 2025 at the end of the day will see slower growth in 2024.

Or if we want to look further ahead, the next fiscal year for 2026 will be slower than what we saw for the fiscal year of 2025.

So starting with that is the baseline.

John, what do you think?

I think there might still be surpluses this fiscal year, but they won't be very.

Large, not in a billion.

Subsequent years is a little more of a question.

Yeah.

Okay, gentlemen, thanks.

We're going to bring our guest on and keep this dialog going.

Coming up on this program, Lee Lily is the new secretary of commerce for the Old North State.

Secretary Lily will be joining this dialog.

Also coming up, Scout Motors made a huge splash.

Remember the International Harvester scout?

Yeah, that's alive again.

And they are making it in South Carolina.

And we are going to have Scout Motors CEO on his name Scott Keogh.

He will be also a guest on this program.

There is a distinctive difference between, as we talked about how people feel about the economy and what the data is saying.

This dichotomy is important to understand.

It's also usually one of the most important things when you are, oh, let's say the CEO of a bank or a credit union, of which our guest is the second largest credit union in North Carolina.

We welcome back again, Todd Hall.

Todd, welcome to the program.

Good to.

See you.

Thank Chris.

Good to see you as well.

So as an economist, which I know you aren't really, but you kind of are.

What how do you unpack this and how do you think about that when you're reading the tea leaves of your credit reports or you're talking to your team, what do you think's going on?

So we see a lot of what John was talking about a little bit earlier.

People's perception, this uncertainty of what's going on in the economy, what they're reading about, whether it be tariffs or other things, usually causes them, concern.

And so they start to tighten.

So we're seeing a reduction in spending by a majority of the consumers, our members.

So, we're feeling that of course, all those folks, most of them being a low income designated credit union we serve, you know, low demand folks.

And all those folks are looking for ways to improve their cash flows.

So a great deal of lending is going on with regards to consolidation loans, finding ways to potentially, package that and improve people's credit so that they might lower the interest rate that they're paying at the moment.

So.

John, question.

So, as you well know, the banking industry is often argued that are they got a hand tied behind their back because their income is tax or property tax credit unions or not, as has happened before, there's a bill filed in Congress that would tax, credit union income.

I think, of credit unions with $1 billion in assets or higher.

Right.

I'm going to go out on a limb and assume maybe you're not a big fan of this legislation.

It's hard to make that guess right.

Well, we're not you know, I do think there's some distinction.

I was a 25 year banker prior to finding the credit union space, and I do think there's some distinctions between the two with regards to mission, you know, being a low income designated, like I mentioned earlier, we're out there to serve people that perhaps banks have different ways of making money and are less involved on the consumer side of things.

You know, but I understand their their complaint about having their, you know, one hand tied behind their back.

But we pay all taxes, but but income tax and, you know, my, my story to them might be if it's so good can be a credit union.

How do you think they'd respond to that.

Oh, I you know, I don't think they'd like it.

I it's hard to make a living as a credit union, honestly.

Just just because of the limitations with regards to how you can lend money, you know, so our our loan portfolio is far different than most banks.

We generate income differently.

And then of course our access to capital is really what we created.

Earnings.

We were one of the first credit unions to go to the go to the sub debt market, in the country.

And with the very first to get a bond rating when we did.

So, and so it's a little bit more prevalent, but it's just not as easy to go find capital as banks have because they have shares.

And things of that nature.

So with demographics, changing in the US and the aging of the population, how are you taking that into account with respect to perhaps different spending patterns among the elderly population, different wealth levels and so forth.

So how do you think about the next 5 to 10 years, given that demographic shift that we're seeing?

Yeah, I think that contributes to really what's going on in the whole technology arena.

Right.

So everybody our generations, younger generations all want, you know, a seamless interaction speed to transaction comfort, do it on their time frame.

And so we, like everybody else, are trying to find the best ways to create that experience.

Much of it, you know, digitally and online, people still want to have the ability to access you, you know, you know, in a face to face arena.

But so in the next 5 to 10 years, I think, is that it's.

So how do you how do you create the revenues that, that then allow you to invest in that technology that makes you more relevant with, with all generations, with how they want to do business, with financial services, you know, companies.

And then how do you and how do you keep the talent to do so?

Do you see the seniors also continuing to about that technology as well?

Yes, sir.

We we do.

It's very interesting.

I think Covid played a great deal of that.

Everybody was housebound.

And so, you know, we all became great.

You know Amazon purchasers.

And you know I think I lead the consumption of cardboard in the in the state of North Carolina right now with all that comes to my house.

But.

You know, let's get to innovation in technology.

Stay on that same thing.

It got I you've got folks that are either comfortable with it or not.

Will it is that I'm not going to ask this.

Right.

It's not very easy way to do this, but how how does innovation, AI, cybersecurity is that all?

One big division that you run in the bank because it's virtual.

So so they are big, but they're a little separate.

So you know I you talked about AI earlier I totally agree with that.

You know we we spend a great deal of time in the boardroom and on the execution tables around how, how can we use AI to our advantage to enhance the folks we have, but to get rid of much of the mundane, speed the process, deliver quickly, personalize our experiences for our members, all those things that that I can help you to do.

And I agree with John's assessment that, there's there's a lot of value in it now.

There's far more to come.

But it's just getting back to.

Okay, can you afford to implement it?

How how best to prioritize what you want to do with it.

Those are the kind of questions we have with that cyber.

Cyber is a different beast.

So, you know, we sit in the chair, but not not if but when.

Is it worse now than it was last year or the year ago?

I would say that there's far more visibility into what's happening when people are being breached.

I don't know that the attacks that we're seeing and others are seeing is any less, but certainly the fraudsters are getting far more advanced and the AI is contributing to their part of that as well.

So as a plus on some ways, a, you know, a deficiency on the others.

But so we just started a credit union cyber security consortium with a number of other like sized credit unions in the southeast to just begin to say, all right, let's get all get to the table and start sharing ideas.

What are your experiences?

What are you seeing?

What what have you found successful with regards to partners or techniques and other things like that?

And then our hope would probably be to see that, morph into our ability to then provide support to smaller financial institutions that don't have the funds.

You know, many of them struggle to even get get cyber insurance because they don't they don't have all the, you know, the particular check boxes and capabilities.

So so we're hoping that that leads to something a little larger in the industry and begins to help others combat from cybersecurity.

Mr. hood.

So I asked you about federal legislation about the potentially taxing credit union incomes.

But there's also state legislation that would expand opportunities for people to go into credit unions in North Carolina.

There's a bill I think it has to do with if you live in a banking, deserts, deserts, that sort of thing.

So what is it appropriate to start expanding?

Who can belong to a credit union away from the original Nexus that it had?

You know, so true.

I was actually at the crux of when they changed the Credit Union Credit Union Act and opened up field of memberships.

And so, you know, we believe that of our communities, there's a certain segment of those folks that are prone to find value in what, what credit unions offer.

And so giving those folks access to that whatever community it might be and or, you know, whoever they might be affiliated with from a work perspective and stuff, you know, makes sense to me, to do that, and of course, if they're in communities where they're limited in their, their, options.

Yeah, I think we ought to give them as many options as we can.

So, you know, I understand that competition is competition, you know, between between us and the and the banks, and it's all fair.

And, you know, having been a banker, you know, there's a lot of of friends on that side.

I think they do a great job.

The country our communities need both, in my opinion.

But I do think that credit unions starting to resemble, as I grew up, the, you know, the community banks of that time.

And I think we're starting to feel some of that.

And it would kind of speak to the same thing that would we go to the smaller rural communities that some other institutions can't create enough value to remain in physically.

And might we fill that void.

I think is could you make money doing that in the smaller ones?

If you had to, I think you'd have to be, you know, really, efficient in how you want to go about it.

Yeah.

You know, real estate is expensive.

Talent.

You know, salary companies is expensive and things.

But, in some way, the one good thing is because of how we're structured, you know, we don't always have to get the maximum return on and, you know, asset and ROI or ROE that, that a bank might be pressured to because of fiduciary liabilities from their shareholders.

So Doctor Van Ness.

So circling back to the short run economic outlook, if you look at metrics like delinquencies and defaults, how how tight does that correlate to, to, to economic distress and changes in the economy in terms of what you all are seeing on a day to day basis?

Yeah.

So there's definitely a correlation.

If you were to look at our financials, you would see that, you know, we we've been in a rather, elevated delinquency and charge off pattern for the past 18 months or so.

And most of that arose from the fact that we went out aggressively to, to to lend money, in 22 and 23 when we felt like people coming out of a Covid and the expansion of communities back and getting that, place, there was opportunity for us to go help more people.

And so, with more lending comes more charged offs, you know, but I do the the big concern we have right now in the short term will be employment.

We think that that, delinquency and charge offs is in a good place for us and others as long as people stay employed.

But if we start to see, you know, unemployment rise significantly within the communities we serve, some great concern about their ability to.

Repay, you know, on the same part of the bank, the bank's business, SBA lending, your number one SBA lender, why did you lean so aggressively into that?

Isn't that aren't those harder to process for you as a banker.

So.

Well, there's there's expertise required.

Right.

And so a lot of a lot of credit unions for sure.

But but banks too don't have that expertise.

And so fortunately for me, in my my previous life as a banker, I was exposed to that to SBA lending and how how that could be done well and what it took to do it successfully.

And so, when I came to the credit in space, I was like, here's an opportunity for us to live our mission, go serve Main Street America, because those people were making SBA loans to cannot get those, get loans, you know, at normal financial institutions.

And so we think it's a great opportunity to serve, you know, that segment of America is built on the small business owner.

Right.

And so we're out there doing that.

And as you mentioned, you know, we're now the largest, SBA lender in the credit union space nationally.

And and then financially, you know, because you have that 75% guarantee on the SBA loan, that that is a liquid market.

So we can then sell those guarantees into the secondary market and recoup that non-interest income coming off of that.

And it lessens potential loss because, you know, that SBA market's going to have a traditional 4% credit loss.

You know, so you plan for that.

You you accrue for that in your allowance, you know, with your Cecl lacunae and your Cecl.

But we just saw it as a really good opportunity.

Want to live our message?

Go serve.

You know, Main Street America, small business owners across the country, and then create a revenue stream that then again, helps us be insulated from the traditional interest income, you know, the cost of funds mechanism that drives so many people's.

Okay, two minutes left.

Question.

Yeah, just real quick.

You mentioned that people still want the experience of face to face.

What's the future of the retail branch location?

Is it going to stay the same?

Is it going to shrink footprint?

Going to shrink?

Yeah.

You know, I think, the answer is yes and no.

I it depends on the community.

So if we were up in the triad, we, we, you know, we, we originated and we consider our core, you know, we have branches that are five and 6000ft and are just busting at the seams with people.

And now, of course, we serve a lot of people that still like to, you know, transact in cash or come cash their checks and come in and sit down about loans.

A lot of, you know, we will, serve a large portion of Hispanic, of the Hispanic communities.

But in other areas, when we like, we were expanding in the upstate of South Carolina right now.

And so we've added five new branches in a regional office there in the past two years.

And so there you see us with a much smaller physical footprint, because, you know, we don't have that 25 year history and that's going to drive it in there.

But people like to see you on those pin corners.

If the right places to know that you're financially secure and and compete.

And so, you know, we're out there banging heads with Chase and all those that want to Huntington and Chase and all those guys that want to expand in the Carolinas right now.

Do those guys, as you talk about Chase and Huntington Bank, they're doing de novo branches out of the ground.

Those aren't inexpensive to do yet.

Would you forecast that they're going to figure out that this might not be easy pickings in the South, as they may see?

Thank you.

And, you know, I would say those cats are pretty smart.

And so I think that, you know, Chase chase has this huge credit card portfolio, a national credit hopefully.

Right.

And so they've got all these members that are already familiar with them, probably bank with them online.

And so now they start popping up and they're looking for opportunities really to create consumer liquidity.

You know it's all about consumer deposits.

So I don't think they're going to find that I think that they'll go get their share.

If you look at market share for us, you know, Bank of America, Wells Fargo, Chase, they're going to hold every across the country 75% liquid.

You know, and then then the fintechs are kind of banking on the bottom end of that a little bit.

So, you know, the window squeezes.

But no, I think that they'll probably find the success they're, they're seeking.

Maybe not as quickly.

But you know, I think the southeast is competitive.

You know, most everybody's here including, you know, but, I think they probably know what they're doing.

Todd, I wish I didn't have to cut you off because we need to get to the pitch clock and Major League.

Baseball, because that would be a good topic.

That would be good, I know.

Thank you for being back.

It's a pleasure.

Yeah.

You too.

Joey.

Always nice to see you.

Likewise, Chris.

Thanks, John.

You too.

Thanks for being.

Thank you.

Until next week, I'm Chris, will you?

If you're a graduate.

Nice job.

Have a good weekend.

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