Credit Union Outlook Through 2014

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The Economy and
Credit Unions
Catalyst Economic Forum
October 22, 2013
Bill Hampel, Chief Economist
Credit Union National Association
[email protected]
Economic Overview
• Economy gradually accelerates to 3% in
2014.
• Inflation a non-issue through 2014.
• Unemployment flirts with 6.5% by end of
next year.
• 10 Year Treasury averages 3% in 2014.
• Fed Funds stuck until at least 2014 III.
Economic Overview
• Economy gradually accelerates to 3% in
2014.
• Inflation a non-issue through 2014.
• Unemployment flirts with 6.5% by end of
next year.
• 10 Year Treasury averages 3% in 2014.
• Fed Funds stuck until at least 2014 III.
Unless Congress messes up
Interest Rate Outlook
Interest Rates
12
1988 to Present
10
Fed Funds
10-yr Treas
8
6
4
2
0
88
90
92
94
96
98
00
02
04
06
08
10
12
The Fed’s Monetary Policy
• Unusually clear
• Fed Funds Rate Policy
– No change until unemployment reaches 6.5%,
unless inflation outlook rises substantially.
• Quantitative easing (monthly purchases of
long-term securities)
– “Tapering” to begin soon, to end around time
unemployment rate reaches 7%.
The Fed’s Monetary Policy
• Unusually clear, sort of.
• Fed Funds Rate Policy
– No change until unemployment reaches 6.5%,
unless inflation outlook rises substantially.
• Quantitative easing (monthly purchases of
long-term securities)
– “Tapering” to begin soon?? To end around
time unemployment rate reaches 7%.
“Real” 10 Year Treasury Yield
Current Yield Minus Trailing One Year Core CPI
Unemployment Rates and
Recessions
Percent of the Labor Force
Treasury Yield Curves
3.00
2.50
2.00
1.50
1.00
0.50
0.00
3 mth 1 Yr
3 Yrs
April 2013
5 Yrs
7 Yrs
Sep 2013
9 Yrs
10 Yrs
Yield Curve Changes in 2013
300
Basis Points
281
250
222
200
176
160
150
115
100
78
50
5
0
9
2
6
4
12
12
23
40
71
34
2
1 Mth 3 Mths 6 Mths
1 Yr
April
2 Yr
Sep
3 Yr
5 YR
7 Yr
10 Yr
Credit Union Outlook Through 2014
• Moderate savings and asset growth
– Low interest rates, spending rising
• Weak, but recovering loan growth
– Household de-leveraging is moderating
– Improving confidence, building backlogs
• Loan delinquencies and losses about back to normal
• Modest outlook for net income
– Lower loan loss provision expense
– Lower stabilization assessments
– Net interest income still constrained
– Refi revenue moderating
• Rising net worth ratios
Credit Union Loan Growth
30
Annual Percent Change
25
20
15
12 Months
To Aug
10
5
0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
-5
-10
14F
Changing Distribution of Loans
Loan Growth by Type
Into and Out of
The Great Recession
15.0%
Non-Mortgage Loan Growth
10.0%
5.0%
0.0%
Total
Unsecured
New Veh
Used Veh
Other Non Mtg
-5.0%
10.0%
15.0%
20.0%
2006
2007
2008
2009
2010
2011
2012
2013.5
Mortgage Loan Growth
40.0%
30.0%
20.0%
10.0%
0.0%
Total Mtg
Fixed Rate 1st
ARM First
FR Seconds
ARM Secs
10.0%
20.0%
2006
2007
2008
2009
2010
2011
2012
2013.5
Credit Union First Mortgage
Originations
2013 Q2
$ Trillions
Annualized
Credit Union Share of
First Mortgage Originations
2013 Auto Lending Outlook
Stronger economy, improving labor markets
• Modest increases in market interest rates
• Declining but affordability still high
• Lots of pent up demand
• Continuing shift from used to new
• Fewer incentives = increased opportunity for CUs
 Direct rates vs. banks remain very favorable
 2.6% vs 3.9%
Annual Light Vehicle Sales
Millions
Annual Light Vehicle Sales
Millions
Annual Light Vehicle Sales
Millions
2013 Auto Lending Outlook
Stronger economy, improving labor markets
• Modest increases in market interest rates
• Declining but affordability still high
• Lots of pent up demand
• Continuing shift from used to new
• Fewer incentives = increased opportunity for CUs
 Direct rates vs. banks remain very favorable
 2.6% vs 3.9%
2013 RE Lending Outlook
Stronger economy, improving labor markets
• Modest increases in market interest rates
• Home prices up
• Affordability still high, although declining
• Lots of pent up demand/supplies low
Originations will slow
• Refi’s down
• Purchase money mortgages up
Interest Rates
12
1988 to Present
10
Fed Funds
10-yr Treas
8
6
4
2
0
88
90
92
94
96
98
00
02
04
06
08
10
12
Credit Union Delinquency
2.5
Dollars Delinquent as Percent of Total Portfolio
2
1.5
1
0.5
13F
14F
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
38
0
Various Loan Delinquency Rates
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Overall
2006
Credit Cards
2007
2008
2009
Indirect Auto
2010
2011
MBLs
2012
2013 II
3.5%
Mortgage Delinquency Rates
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Total Mtg
2006
FR Firsts
2007
2008
ARM Firsts
2009
2010
Fixed Secs
2011
2012
Home Equtiy
2013 II
1.4
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
II
3F
Net Loan Charge-0ffs
Total Portfolio
1.2
1
0.8
0.6
0.4
0.2
0
Net
Charge-Offs
by
Loan
Type
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.7%
2.0%
1.5%
1.0%
0.5%
0.7%
0.6%
0.3%
0.5%
0.2%
0.2%
0.0%
0.0%
Overall
2007
Credit Card
2008
2009
Firsts
2010
0.2%
Seconds
2011
2012
MBLs
13 II
Credit Union Savings Growth
Annualized Percent Change
25
20
15
10
5
0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12 13F
Credit Union Net Income
60
To Average Assets
40
20
00
80
60
40
20
0
20
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12 13F
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
00
11
12
13 8
13F
12
Net Capital to Assets
10
8
6
4
2
0
U.S.
PCA Well Cap'd
PCA Adequate
What’s Driving Earnings?
POSITIVES:
• Lower provision expenses
• Lower stabilization assessments
NEGATIVE, for a while longer:
• Net Interest Income
TURNING NEUTRAL
• Mortgage refinance revenue
AT RISK
• Debit interchange revenue
$10
$9
$8
CU Provisions, Allowances &
Net Chargegoffs
($ Billions)
Provisions
Allowance for Loan Loss
Net Chargeoffs
$10
$9
$8
$7
$7
$6
$6
$5
$5
$4
$4
$3
$3
$2
$2
$1
$1
$0
$0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Corporate Stabilization Assessments
Basis Points of Insured Shares
?
260
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2Q13
Credit Union Net Interest Margin
400
380
360
340
320
300
277
280
The Economy and
Credit Unions
Catalyst Economic Forum
October 22, 2013
Bill Hampel, Chief Economist
Credit Union National Association
[email protected]
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