The Consumer and Spread
Compression
Georgia Credit Union Idea Institute
August 19, 2014
Bill Hampel, Interim CEO
Credit Union National Association
bhampel@cuna.coop
Agenda
• The economic outlook through 2015.
• Household finances.
• Credit union balance sheets and earnings.
Economic Summary
• Ending the fifth year of recovery.
• Job market improving, but still significant
slack: 15 million.
• Inflation nowhere in sight.
• Prospects improving for a sustained
recovery: escape velocity.
• External and political risks changing.
Gross Domestic Product
Quarterly Changes at Annual Rates, Real
10
8
2014, 15
Forecasts
6
4
2
0
-2
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-2.1
-4
-6
-8
-10
2001 Recession
Great Recession
Of 2008 - 2009
Household Finances
• Recovering:
– Debt burden falling
– Stock market recovered
– Home prices rising
• But still room for further improvement:
– Debt burden still relatively high
– Home prices still off peak
• Improved ability to spend, lagging but
recovering willingness
• Demand backlogs building
140%
120%
Household Debt Outstanding
To Annual Disposable Income
123%
100%
80%
99%
60%
40%
Mortgage
20%
Consumer
0%
US Home Prices
250
S&P/Case-Schiller National Index
Index
200
Trend 1987 to 2000
191.0
151
150
100.8
100
50
0
132.7
137.0
S&P 500
Monthly Averages
Household Net Worth
Annual Light Vehicle Sales
Millions
Annual Light Vehicle Sales
Millions
Annual Light Vehicle Sales
Millions
Non-Farm Payrolls
Monthly Changes SA, to May 2014
600
400
8.7 million jobs lost
200
0
-200
-400
9.2 million jobs gained
FINALLY!
-600
-800
-1000
06
07
08
09
10
11
12
13
14
Unemployment Rates and
Recessions
Percent of the Labor Force
20
18
16
Broadest Measure 12.2%
Down from 17.4%, Oct 2009
14
12
10
8
Forecasts:
12/14: 6.2%
12/15: 5.5%
6
4
2
0
Narrow Measure 6.2%
Down from 10.1%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Consumer Confidence
Conference Board
July: 90.9
Consumer Price Inflation
1970 to Present, Annual Rates
12 Months to June
Top Line = 2.1%
Core = 1.9%
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
14
Interest Rates
10
1988 to Present
9
8
10-yr Treas
7
6
5
4
3
2
1
0
88
90
92
94
96
98
00
02
04
06
08
10
12
14
“Real” 10 Year Treasury Yield
Current Yield Minus Trailing One Year Core CPI
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
April 2014
7 Yrs
9 Yrs
10 Yrs
Yield Curve Change since April 2013
300
Basis Points
267
250
222
200
176
167
150
115
100
86
71
50
5
0
9
3
6
4
5 12 11
23
40 34
1 Mth 3 Mths 6 Mths 1 Yr 13-Apr
2 Yr
314-Apr
Yr 5 YR
7 Yr
10 Yr
Economic Forecast
June, 2014
Actual Results
Quarterly Results/Forecasts
Annual Forecasts
5Yr Avg 2013 2014:1 2014:2 2014:3 2014:4 2014 2015
Growth rates:
*Economic Growth (% chg GDP) 1.24%
Inflation (% chg CPI)
1.60%
Core Inflation (ex. food & energy) 1.64%
Unemployment Rate
8.70%
Fed Funds Rate
0.14%
10-Year Treasury Rate
2.68%
* Percent change, annual rate
All other numbers are averages for the period
1.90%
1.46%
1.76%
7.40%
0.11%
2.35%
-1.00%
3.00%
3.50%
3.55%
6.70%
0.10%
2.75%
6.30%
0.10%
2.65%
6.20%
0.10%
2.85%
6.10%
0.10%
3.00%
.
2.26%
2.00%
2.00%
6.33%
0.10%
2.81%
3.75%
2.00%
2.00%
5.80%
0.75%
3.40%
Credit Union Outlook Through 2015
• Moderate savings and asset growth
– Low interest rates
– Spending growth
• Strengthening loan growth
– Household de-leveraging is moderating
– Improving confidence, building backlogs
• Loan delinquencies and losses about back to
normal
• Mixed outlook for net income
– See below
• Rising net worth ratios
Credit Union Loan Growth
30
Annual 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 14 14F
-5
-10
2.5
Credit Union Delinquency
Dollars Delinquent as Percent of Total Portfolio
2
1.5
1
0.5
14F
15F
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
13
14
0
14F
15F
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
13
14.1
1.4
Net Loan Charge-0ffs
Total Portfolio
1.2
1
0.8
0.6
0.4
0.2
0
Credit Union Savings Growth
25
Annualized Percent Change
20
15
10
5
0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 14F
-5
160
140
120
100
80
60
40
20
0
-20
Credit Union Net Income
To Average Assets
16
Net Capital to Assets
14
12
10
8
6
4
2
U.S.
Column2
PCA Well Cap'd
PCA Adequate
14F
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
14
0
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 LONG-TERM RISK
• Debit interchange revenue
• Overdraft revenue
CU Provisions, Allowances &
Net Chargegoffs
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 LONG-TERM RISK
• Debit interchange revenue
• Overdraft revenue
Corporate Stabilization Assessments
Basis Points of Insured Shares
?
Corporate Stabilization Assessments
Basis Points of Insured Shares
!
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 LONG-TERM RISK
• Debit interchange revenue
• Overdraft revenue
Credit Union
Net Interest Income
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 LONG-TERM RISK
• Debit interchange revenue
• Overdraft revenue
Interest Rates
10
1988 to Present
9
8
10-yr Treas
7
6
5
4
3
No more Refi Booms
2
1
0
88
90
92
94
96
98
00
02
04
06
08
10
12
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 LONG-TERM RISK
• Debit interchange revenue
• Overdraft revenue