Economic & Credit Union
Monthly Update
January 2016
To access this monthly update go to: www.cunamutual.com/trendsreport
Table of Contents
If you have any questions or comments,
please contact:
Steven Rick, Chief Economist
CUNA Mutual Group – Economics
800.356.2644, Ext. 665.5454
steve.rick@cunamutual.com
CUNA Mutual Group Proprietary
Reproduction, Adaptation or Distribution Prohibited
© CUNA Mutual Group
Economy………………………….Page 2-9
Household Financial Condition…Page 10-15
Credit Union Loans….…..………Page 16-25
Credit Union Investments……….Page 26-29
Credit Union Savings……………Page 30-39
Credit Union Earnings……….….Page 40-51
Credit Unions and Members…...Page 52-55
Economic & CU Forecast……....Page 56-57
Economics Section
•
•
•
•
•
•
•
Gross Domestic Product
Labor Market
Inflation
Interest Rates
Auto and Home Sales
Exchange Rate and Oil Prices
Stock and Home Prices
2
Modest Economic Growth and Falling GDP Gap
GDP Output Gap
vs.
Federal Funds Rate
U.S. Economic Output
(Real GDP - Quarterly Growth Rate)
6.0
4.6
5.0
4.0
3.0
3.9 3.9
3.1
2.7
2.0
2.72.5 2.9
2.0
1.4
1.3
1.7
0.8
1.0 0.2
0.0
-1.0 07:1
08:1
-2.0
-3.0
09:1
-0.5
2.7
1.9
10:1
11:01
3.8
3.0
4.6
4.3
1.9
1.1
13:01
2.8
2.1
2.0
0.6
0.5
0.1
12:01
3.9
14:01
15:01
16:01
-0.9
-1.5
-1.9
-2.7
-4.0
-5.0
-6.0
-5.4
-7.0
-8.0
-9.0
-8.2
-10.0
GDP Growth
2.5% Maximum Sustainable Growth Rate
8%
Recession
7%
Output Gap (Left Axis)
6%
Federal Funds Rate (Right Axis)
5%
4%
3%
2%
1%
0%
-1% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
-2%
-3%
-4%
-5%
-6%
-7%
-8%
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Source: Department of Commerce.
Source: CBO & Federal Reserve.
The economy expanded at a 2.0% annualized rate in the 3rd quarter, below the long-run natural rate of 2.5%, due to a dramatic slowdown in
inventory accumulation. Consumer spending, fixed investment spending and state and local government spending were the main drivers of
growth. Real output rose 2.2% year over year. Final sales added 2.7 percentage points and the change in inventories subtracted 0.6
percentage points. Economic growth should come in at 2.8% in 2016 and 2017. The economy is operating with a -3.0% “output gap” but is
rapidly approaching its potential level of output. The Federal Reserve will raise the fed funds interest rate 25 bps 3 to 4 times in 2016.
3
Strong Employment Gains Close In On Full Employment
US Payroll Employment
Unemployment Rate
Monthly Changes SA
600
600
500
500
400
400
300
300
200
200
100
100
Thousands
0
0
05
06
07
08
09
10
11
12
13
14
15
16
17
18
17
16
15
14
Recession
Unemployment
Underemployment (U-6)
Full Employment Target = 5%
Underemployment Target = 9%
18
17
16
15
14
13
12
11
13
12
11
10
9
8
10
9
8
-100
-100
-200
-200
7
7
-300
-300
6
5
6
5
-400
-400
-500
-500
4
3
4
3
2
2
1
0
1
0
-600
-700
-800
-900
Recession
Payroll Growth
150,000 Target
-600
-700
-800
-900
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: Department of Labor.
The labor market added 292,000 jobs in December and 252,000 in November, above the 150,000 target. Average hourly earnings rose 2.5%
during the last year as the labor market approaches full employment. The unemployment rate remained at 5.0% in December, which
corresponds to 7.9 million unemployed workers. The labor force rose by 466,000 (486,000 employed + -20,000 unemployed).
The underemployment rate remains at 9.9% or 15.6 million (7.9 mil. unemployed, 5.8 mil. involuntarily part time, 1.9 mil. marginally
attached). Continued employment gains will increase household incomes, wage growth, household formations, confidence and desire to
borrow and spend. Expect loan growth to remain strong in 2016.
4
Inflation Below Target and Falling Inflation Expectations
Nominal Interest Rates, Real Interest
Rates and Inflation Expectations
Inflation (CPI)
(year over year % growth)
6%
6%
6.0
5%
5%
4%
4%
3%
10-yr Treas
2%
1%
1%
0%
0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
-1%
-1%
Headline
-2%
Core (excludes food and energy)
-2%
Federal Reserve's 2% Target
-3%
-3%
6.0
5.5
Nominal Interest Rates = Real Rates + Expected Inflation
4.5
5.0
4.5
Nominal Rates
4.0
Expected Inflation
3.5
2%
TIPS (10-Yr)
5.5
5.0
3%
Inflation Expectations
4.0
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.0
-0.5 07
-1.0
0.5
Real Interest Rates
08
09
10
11
0.0
12
13
14
15
16 -0.5
-1.0
Headline inflation rose 0.0% in November and 0.4% during the last 12 months while core inflation rose 0.2% for the month and 2.0%
during the last year. Core CPI inflation is now at the Federal Reserve’s target of 2% as measured by the core PCE deflator. But the core PCE
deflator rose only 1.3% over the last 12 months. There are 4 factors keeping inflation low: the negative output gap leads to idle capacity, a
rising value of the dollar keeps import prices low, the “commodity super cycle” keeps commodity prices low, and low oil prices.
The 10-year Treasury interest rate fell to 2.24 in December from 2.26% in November due to falling inflation expectations (6 basis points)
outpacing rising real interest rates (4 basis points).
5
Rising Interest Rates and Steeping Yield Curve
Interest Rates and Recessions
Treasury Yield Curves
10
4.0
4.0
9
9
3.5
3.5
8
8
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
00
01
02
03
04
05
Recession
06
07
Baa
08
09
10
Fed Funds
11
12
13
14
10-yr Treas
15
16
17
Forecast
18
Yield to Maturity
10
December 2015
November 2015
Dec. 2016
0.5
0.0
0.5
0.0
12 3
5
10
15
20
Years to Maturity
25
30
The Federal Reserve raised short-term interest rates 0.25 percentage points in December and is expected to raise rates another 0.75 to 1.0
percentage points in 2016. The Fed believes the neutral fed funds rate is 3.5%. Interest rates will “normalize” in 2018 at levels below
previous plateaus due to lower real interest rates and lower expected inflation. The Fed will hold off ending its reinvestment program until
2017. By maintaining the current size of the Fed’s balance sheet and thereby depressing the term premium on long-term bonds, long-term
interest rates will be slow to adjust upwards. This will cause a flattening of the yield curve over the next two years, which typically leads to
downward pressure on credit union net interest margins.
6
Strong Auto Sales and Rising Home Sales
Existing Home Sales (annual rate)
& Inventories
U.S. Vehicles Sales
Seasonally Adjusted Annual Rate
21
20
20
19
19
18
18
17
17
16
16
15
15
14
14
13
13
12
12
11
11
Recession
New Auto Sales
Inherent Demand
10
9
8
05
06
07
08
09
10
11
12
13
Source: Autodata Corp.
14
15
10
4,250
Recession
Sales (Left Axis)
Inventories (Right Axis)
Healthy Housing Market
7,500
4,000
7,000
3,750
6,500
3,500
6,000
3,250
5,500
3,000
5,000
2,750
4,500
2,500
4,000
2,250
3,500
2,000
Thousands
8,000
21
Thousands
Millions of
Units
9
8
16
17
3,000
1,750
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
U.S. vehicle sales slowed to a 17.3 million unit seasonally-adjusted annualized pace in December, from 18.2 million in November. Sales
were up 2.5% year over year in December. Low gasoline prices are driving light truck sales. Consumer fundamentals (strong job growth,
rising incomes and rising wealth) remain favorable to drive auto sales into the future. The trend pace of auto sales – inherent demand - that is
consistent with the growth in the driving age population, income growth and household wealth is approximately 16.5 million units.
Existing home sales fell 10.5% in November, falling to a 4.76 million annual rate, and is down 3.8% from November 2014. Home
inventories remain tight (2.04 million) leading to home prices rising 6.3% year over year.
7
The Dollar is Up and Oil Prices are Down
Oil Price per Barrel
(West Texas Intermediate Crude)
U.S. Dollar Exchange Rate
Major Currency Index
Nominal & Real (1973 = 100)
150
120
120
Nominal
Real
110
110
Recession
140
130
Nominal
130
120
110
100
100
90
90
80
80
70
70
60
60
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
150
140
Real
120
110
100
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
The U.S. dollar rose 11.8% over the last year due to expectations of rising U.S. interest rates and global geopolitical stress. This has reduced
the cost of imports to U.S. residents but raised the cost of exports from the point of view of foreign buyers. This will worsen the trade deficit
and slow economic growth. The appreciating dollar will also slow the pace of Fed interest rate increases.
The price of a barrel of oil averaged $37.19 in December 2015, down from $59.29 one year ago, a 37% decline. This will slow energy
investment but boost consumer spending. Oil Economics:  Poil = $10 =>  PGas = $0.25 =>  growth 0.3%-0.5% over next two years
8
Rising Stock and Home Prices
S&P 500 Stock Index
(monthly average)
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
Recession
Nominal Index
Real Index
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
OFHEO House Price Index
(4-Qtr Percent Change)
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
15
Recession
15
U.S.
10
10
5
5
0
0
-5 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -5
-10
-10
Seasonally-Adjusted
Purchase-Only Index
-15
-15
Household balance sheets have improved over the last year due to rising home prices.
Stock prices were 0.1% lower in December 2015 than one year earlier, creating a slightly negative wealth effect.
Home prices rose 5.4% over the last year, due to rising home demand colliding with a lack of housing inventory for sale .
9
Household Financial Condition
•
•
Income Statement
Balance Sheet
10
Household Income Statement
Income + Change Debt = Taxes + Debt Interest + Spending + Savings
Personal Income &
Consumption Expenditures
Personal Income &
Consumption Expenditures
[Month Over Month % Change]
1.0
[Year Over Year % Change]
10
9
8
7
6
5
4
3
2
1
0
-1 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
-2
Recession
-3
Consumption
-4
-5
Income
-6
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
-0.1 Nov. Dec Jan. Feb. Mar. April May June July Aug. Sept. Oct. Nov.
-0.2
-0.3
-0.4
2015
Consumption
Income
-0.5
Personal income rose 0.3% in November and 4.4% year over year, due to rising rental and labor income. Wage income growth came in at
0.4%. Nominal spending rose 0.3% in November (led by durable good spending) and 2.9% year over year. The outlook for spending is
positive because of the recent rise in discretionary items (recreational goods, furniture and appliances, and vehicles sales). Lower gas prices
are freeing up cash for other purposes. Consumers had chose to save the gas windfall and/or pay down debt. Now they are starting to spend
the gas windfall. Household balance sheets improved over the last year as home prices rose 6% and debt burdens fell. This will boost
spending from the “wealth effect” and from additional access to credit. The lowest debt burdens & payments in 35 years is freeing up
income for additional spending. A surge in household formations will lift spending in the next couple of years.
11
Household Income Statement
Income + Change Debt
=
Taxes + Debt Interest + Spending + Savings
Consumer Credit Outstanding
Household Debt Service Ratio
19%
19%
35
18%
18%
12
30
17%
17%
10
25
16%
16%
8
20
6
15
4
10
16
40
14
2
5
0
15%
$ bil (SA)
Percent
(monthly change & annual growth rate)
15%
Recession
14%
Debt Service Ratio
14%
Financial Obligations Ratio
13%
13%
12%
12%
0
05
06
07
08
09
10
11
12
13
14
15
16
-2
-5
-4
-10
11%
11%
-15
10%
10%
-6
-8
Recession
Consumer Credit Monthly Change (RHS)
Year-over-Year Growth (LHS)
-20
9%
9%
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 15 16
Consumer credit rose $13.9 billion in November, a decleration from $15.6 billion in October. Consumer credit rose 7.0% over the last year
(revolving rose 3.9% and nonrevolving rose 7.9%). Big ticket items (auto and student loans) continue to be the major driver of consumer
credit. Rising consumer confidence is a sign consumers are more willing to take on debt via credit cards.
The household debt service ratio (mortgage and consumer debt payments (interest and principal) required to remain current on that debt as
a percent of disposable personal income) rose to 10.03% in the third quarter from the record low of 10.01% in the fourth quarter of 2014 but
below the record high of 13.22% in Q4 2007. Low debt payments freed up disposable income for additional consumption or savings.
12
Household Income Statement
Income + Change Debt = Taxes + Debt Interest + Spending + Savings
Consumer Confidence &
Sentiment Index
National Savings Rate
[3-month moving average (Personal Savings/DPI)]
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
150
150
140
140
130
130
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
40
Recession
30
40
30
20
Confidence
20
10
Sentiment
10
1
0
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
0
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
The saving rate (savings / disposable personal income) fell to 5.5% in November from 5.6% in October. Savings should decline as
households begin spending some of their gasoline savings windfall. In this environment of modest savings, spending gains will be highly
dependent on income growth and consumers preferences for additional savings.
Consumer Confidence Index rose to 96.5 in December due to rising job creation over the past two months.
Consumer Sentiment Index rose to 92.6 in December due to rising stock prices and 37% lower gas prices over the last year.
Improving GDP growth will boost consumer confidence and also the demand for credit.
13
Household Financial and Non-Financial Assets are Rising
Household Financial Assets
Household Non-Financial Assets
(As a Percent of Disposable Household Income)
(As a Percent of Disposable Household Income)
600%
600%
580%
580%
560%
560%
540%
540%
520%
520%
500%
500%
480%
480%
460%
460%
440%
440%
420%
420%
400%
400%
380%
380%
360%
360%
340%
340%
320%
320%
300%
300%
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 15 16
Source: BEA & Federal Reserve.
320%
320%
300%
300%
280%
280%
260%
260%
240%
240%
220%
220%
200%
200%
180%
180%
160%
160%
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 15 16
Source: BEA & Federal Reserve.
During the Second quarter of 2015, the real annual purchasing power of financial assets are the highest in U.S. history at $5.25 per dollar
of disposable income (5.25 years worth of disposable income), up 24% from the cyclical low of 4.22 set back in the first quarter 2009.
Rising stock prices were the major contributing factor. The real annual purchasing power of non-financial assets rose to $2.27 per dollar of
disposable income (2.27 years worth of disposable income), up 14% since the cyclical low of 1.96 set in the third quarter of 2011, due
mainly to rising home prices. Non-financial assets as a percent of disposable income is down 24% from the record high of 2.96 set back in
the fourth quarter of 2005.
14
Household Balance Sheets Are Healing
Household Debt
Household Net Worth
(As a Percent of Disposable Household Income)
(As a Percent of Disposable Household Income)
140%
140%
130%
130%
120%
120%
110%
110%
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
40%
40%
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 15 16
Source: BEA & Federal Reserve.
700%
700%
680%
680%
660%
660%
640%
640%
620%
620%
600%
600%
580%
580%
560%
560%
540%
540%
520%
520%
500%
500%
480%
480%
460%
460%
440%
440%
420%
420%
400%
400%
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 15 16
Source: BEA & Federal Reserve.
During the second quarter of 2015 , households’ debt burden ratio (debt-to-disposable-income) fell to 1.04, from 1.29 in the fourth quarter
of 2007. Financial institutions writing off and households paying off mortgage debt were the major contributing factors for the decline. The
deleveraging phase of the business cycle has come to an end. If growth in debt equals the growth rate of disposable income over the next few
years the debt burden ratio will remain around 100% which is what economists believe is sustainable in the long run.
The real annual purchasing power of household net worth rose to $6.45 per dollar of disposable income (or 6.45 years worth of disposable
income), slightly below the 6.51 record set back in the fourth quarter of 2006.
15
Credit Union Loans Section
•
•
•
•
•
•
•
•
Total Loans
Loan Quality
New Auto
Used Auto
Credit Card
Home Equity
Fixed-Rate First Mortgage
Adjustable-Rate First Mortgage
16
Rapid Credit Union Loan Growth
Credit Union Loan Growth
Credit Union Loan Growth
(Annual Percent Growth)
12
10.8 11.0
10.9
2014 Q3
10.7 10.5
10.0
10
(by Asset size)
16
14
10.0
2015 Q3
12.612.9
12
7.5
7.0
7.3
10.811.1
9.5
10
6.7
Percent
8
7.8 7.6
6
4.8
4
8.3
8
6.5
6
7.0
7.5
4.7
4.0
4
2
1.2
2.3
1.2
2.8
3.1
2
0
00
-2
01
02
03
04
05
06
07
08
09
10
-1.2
11
12
13
14
15
16
0
< $20 mil $20-$50 $50-$100
$100$250
$250$500
$500-$1
bil
>$1 bil
Expect loan balances to grow 10.5 in 2015 and 10% in 2016 as the strengthening economy boosts members’ willingness and ability to
accumulate debt and therefore satisfy some of their pent up demand that was accumulated during the weak and uncertain economic recovery
of the last six years. But the loan growth disparity between small and large credit unions is rather large.
In the last 12 months ending in Q3 2015, credit unions with assets greater than $1 billion reported an 12.9% increase in loan balances
versus credit unions with assets less than $20 million reported loan growth of only 2.8%.
17
Improving Credit Quality As Unemployment Falls
CU Delinquency Rate
Versus
Unemployment Rate
12
11
10
9
8
7
6
5
4
3
2
1
0
Recession
Unemployment (Left Axis)
Delinquency (Right Axis)
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CU Net Chargeoff Rate
Versus
Unemployment Rate
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
14%
1.4%
Unemployment Rate (Left Axis)
Net Chargeoff Rate (Right Axis)
13%
1.3%
12%
1.2%
11%
1.1%
10%
1.0%
9%
0.9%
8%
0.8%
7%
0.7%
6%
0.6%
5%
0.5%
4%
0.4%
3%
0.3%
2%
0.2%
1%
0.1%
0%
0.0%
07:1
08:1
09:1
10:1
11:1
12:1
13:1
14:1
15:1
Source: Department of Labor, NCUA,CUNA
The credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to 0.81% in
November, from 0.83% in November 2014. Today’s delinquency rate is slightly above the 0.71% average reported for the years 2003-2007.
So, 5 years after the Great Recession ended there appears to be few credit problems still lingering on credit union balance sheets from that
time.
Net charge-off rates fell to 0.46% in Q3 2015, from 0.47% in Q3 2014.
18
Rapid Credit Union Loan Growth
CU Loan Growth
Seasonally Adjusted
Annualized Growth Rate
14%
14%
13%
13%
12%
12%
11%
11%
10%
10%
9%
9%
8%
8%
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -1%
-2%
-2%
CU Loan Seasonal Factors
0.7%
0.6%
0.46%
0.5%
0.40%
0.4%
0.29%
0.3%
0.26%
0.20%
0.2%
0.1%
0.03%
0.01%
0.0%
-0.1%
Mar
Feb
Jan
Apr
May June
July
Aug
Sept
Oct Nov
-0.05%
Dec
-0.2%
-0.22%
-0.3%
-0.22%
-0.4%
-0.5%
-0.6% -0.53%
-0.7%
-0.62%
-0.8%
Source: CUNA & NCUA.
Credit union loan balances grew at a 9.8% seasonally-adjusted annualized growth rate in November, similar to the pace set during the
credit boom of 2003-2005. November’s seasonal factors usually subtract 0.22 percentage points to the underlying trend growth rate. The
strong lending “season” is upon us as April through August are the strongest loan growth months of the year.
19
Rapid New Auto Loan Growth
CU New Auto Growth
Seasonally Adjusted
Annualized Growth Rate
28%
28%
26%
26%
24%
24%
22%
22%
20%
20%
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
-10%
-12%
-12%
-14%
-14%
-16%
-16%
-18%
-18%
New Auto Loan Seasonal Factors
1.2%
1.0%
0.90%
0.75%
0.8%
0.6%
0.44%
0.40%
0.4%
0.23%
0.2%
0.03%
0.0%
Jan
Feb
Mar
-0.2%
-0.32%
-0.4%
-0.6%
Apr May
-0.13%
June
July
Aug
Sept
Oct
Nov
Dec
-0.37%
-0.46%
-0.57%
-0.63%
-0.8%
-1.0%
Source: CUNA & NCUA.
Credit union new-auto loan balances grew at a 13.9% seasonally-adjusted annualized growth rate in November, slightly lower than the
pace set in the last few months. November’s seasonal factors usually subtracts 0.37 percentage points from the underlying trend growth rate.
The economic factors that are currently supporting vehicle lending are an improving job market, greater access to credit, low interest rates,
improving household balance sheets, and rising incomes. Expect car sales to decrease slightly in 2016 to reach 17 million units sold as more
pent up car demand is satisfied.
20
Rapid Used Auto Loan Growth
CU Used Loan Growth
Seasonally Adjusted
Annualized Growth Rate
16%
16%
15%
15%
14%
14%
13%
13%
12%
12%
11%
11%
10%
10%
9%
9%
8%
8%
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -1%
-2%
-2%
Used Auto Loan Seasonal Factors
1.0%
0.9%
0.8%
0.7%
0.59%
0.6%
0.47%
0.5%
0.4%
0.32%
0.3%
0.29% 0.31%
0.22%
0.2%
0.12%
0.1%
0.0%
-0.1%
Jan
Feb
Mar
Apr
May June
July
Aug
Sept -0.04%
Oct Nov
Dec
-0.2%
-0.3%
-0.4%
-0.5%
-0.45%
-0.6%
-0.48%
-0.52%
-0.7%
-0.8%
-0.76%
-0.9%
-1.0%
Source: CUNA & NCUA.
Credit union used-auto loan balances grew at a 13.7% seasonally-adjusted annualized growth rate in November.
November’s seasonal factors usually subtract 0.48 percentage points from the underlying trend growth rate. The used auto buying and
lending season begins in March and runs through September.
21
Slowing Credit Card Growth
CU Credit Card Growth
Seasonally Adjusted
Annualized Growth Rate
16%
16%
15%
15%
14%
14%
13%
13%
12%
12%
11%
11%
10%
10%
9%
9%
8%
8%
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -1%
-2%
-2%
Credit Card Loan Seasonal Factors
5.0%
3.90%
4.0%
3.0%
2.0%
1.00%
1.0%
0.07%
0.26%
0.72%
0.62% 0.46%
0.0%
Jan
Feb
Mar
Apr
May June
July
Aug
Sept -0.04%
Oct Nov
Dec
-0.61%
-1.0%
-1.41%
-2.0%
-3.0%
-2.30%
-2.50%
Source: CUNA & NCUA.
Credit card loan balances grew at a 4.8% seasonally-adjusted annualized growth rate in November, due to rising consumer confidence and
spending on durable goods.
November’s seasonal factors usually add 0.72 percentage points to the underlying trend growth rate. The outlook for credit unions’ credit
card lending is positive because of strong consumer fundamentals like the improving labor market, rising home and stock values, faster wage
growth, and greater access to credit.
22
Rising Home Equity Loan Growth
CU Home Equity Growth
Seasonally Adjusted
Annualized Growth Rate
30%
30%
28%
28%
26%
26%
24%
24%
22%
22%
20%
20%
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -2%
-4%
-4%
-6%
-6%
-8%
-8%
Home Equity Loan Seasonal Factors
1.0%
0.9%
0.8%
0.66%
0.7%
0.6%
0.51%
0.51%
0.5%
0.34%
0.4%
0.3%
0.16%
0.2%
0.1%
0.0%
-0.1% Jan Feb Mar
Apr May June July Aug Sept Oct Nov Dec
-0.2%
-0.12%
-0.15%
-0.3%
-0.22%
-0.23%
-0.25%
-0.4%
-0.33%
-0.5%
-0.6%
-0.7%
-0.8%
-0.9%
-1.0%
-0.99%
-1.1%
-1.2%
Source: CUNA & NCUA.
Credit union home equity loan balances grew at a 8.5% seasonally-adjusted annualized growth rate in November, due to rising home
prices and improving consumer confidence.
November’s seasonal factors usually subtract 0.37 percentage points from the underlying trend growth rate. Home equity loan balances will
remain strong due to rising home prices, the improving job market, rising consumer confidence, consumers releasing pent up demand for
durable goods, and low interest rates.
23
Rising Fixed-Rate First Mortgage Growth
Fixed-Rate 1st Mortgage
Seasonal Factors
CU Fixed-Rate
First Mortgage Growth
0.8%
Seasonally Adjusted
Annualized Growth Rate
30%
28%
26%
24%
22%
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
0.7%
0.59%
0.6%
30%
28%
26%
24%
22%
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
0.50%
0.46%
0.5%
0.42%
0.40%
0.4%
0.3%
0.2%
0.1%
0.0%
-0.1%
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
-0.2%
-0.3%
-0.4%
-0.5%
-0.28%
-0.32%
-0.26%
-0.30%
-0.38% -0.39%
-0.6%
-0.7%
-0.66%
-0.8%
Source: CUNA & NCUA.
Credit union fixed-rate first mortgage loan balances grew at a modest 13.2% seasonally-adjusted annualized growth rate in November.
November’s seasonal factors subtract -0.26 percentage points from the underlying trend growth rate. Credit union purchase mortgage
originations should increase 15% in 2016 as housing demand recovers and refi activity increases slightly. A stronger labor market and rising
wages will give more potential homebuyers the wherewithal to purchase a home. Moreover, fading memories of the housing bust will give
homebuyers the confidence and willingness to purchase a home.
24
Strong Adjustable-Rate First-Mortgage Growth
CU Adjustable-Rate
First Mortgage Growth
Adjustable-Rate 1st Mortgage
Seasonal Factors
0.8%
Seasonally Adjusted
Annualized Growth Rate
0.7%
38%
38%
36%
36%
34%
34%
32%
32%
30%
30%
28%
28%
26%
26%
24%
24%
22%
22%
20%
20%
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -2%
-4%
-4%
-6%
-6%
0.5%
0.70%
0.60%
0.6%
0.4%
0.3%
0.24%
0.18%
0.2%
0.11%
0.1%
0.04%
0.02%
0.0%
-0.1%
-0.2%
Jan
Feb Mar
-0.11%
Apr
May June
July
Aug
Sept
Oct
Nov
Dec
-0.22%
-0.3%
-0.4%
-0.5%
-0.6%
-0.45%
-0.40%
-0.58%
-0.7%
-0.8%
Source: CUNA & NCUA.
Credit union adjustable-rate first mortgage loan balances grew at a strong 9.1% seasonally-adjusted annualized growth rate in November.
November’s seasonal factors usually subtract 0.4 percentage points from the underlying trend growth rate.
Credit unions are placing more adjustable-rate mortgages on their books in preparation of the Federal Reserve raising short-term interest
rates in the third quarter of this year.
25
Credit Union Investments Section
•
•
•
•
•
Surplus Funds
Yield on Surplus Funds
Investment Maturities
Liquidity flows
Surplus Funds Distribution
26
Investments Are Falling and Yields Are declining
Credit Union
Yield on Surplus Funds and Loans
CU Surplus Funds
(Cash + Investments)
9.0%
9.0%
75%
40%
73%
38%
8.0%
70%
36%
7.0%
7.0%
68%
34%
6.0%
6.0%
65%
32%
5.0%
5.0%
63%
30%
4.0%
4.0%
60%
28%
3.0%
3.0%
58%
26%
2.0%
2.0%
55%
24%
1.0%
1.0%
53%
50%
Recession
Surplus Funds-to-Assets (Right Axis)
Loan-to-Asset (Left Axis)
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Fed Funds Rate
Yield on Earnings Assets
Yield on Surplus Funds
Yield on Loans
8.0%
22%
0.0%
20%
0.0%
04:1 05:1 06:1 07:1 08:1 09:1 10:1 11:1 12:1 13:1 14:1 15:1
Source: NCUA
Surplus funds fell to 30.5% of assets in November, below the 32.9% in November 2014. Investments as a percent of assets fell over the last
2 years as loans growth accelerated. Loans now make up 65.5% of assets, up from the cyclical low point of 57% set in March 2013. The
yield on surplus funds fell to 0.92% in Q3 2015, down from 1.17% in Q2 2015. Loan yields fell to 4.66% in Q3 2015, the lowest in credit
union history, from 4.67% in Q2 2015. With loan balances expected to grow another 10% this in 2016 ($76.4 billion), expect surplus funds as
a percent of assets to fall below 28% by year end, the lowest level of liquidity since February 2009.
27
Falling Investment Maturities as Yield Curve Steepens
Percent of Surplus Funds Liquid Versus
Yield Curve Slope
Maturity of Surplus Funds
(% of Total)
50
3.0%
46.9
45
42.5
42.4
39.8
40
35
30
29.4
28
27.5
23.9
21.2
25
20
26.4
23.6
2.5%
Percent of Surplus Funds < 1 maturity (Right Axis)
75%
2.0%
3-Yr Treasury - Fed Funds Rate (Left Axis)
70%
1.5%
65%
1.0%
60%
0.5%
55%
0.0%
50%
20.9
18.5
16.9
15
10.5
10
80%
Recession
43.5
8.6
7.7
6.5
7.4
-0.5%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
45%
5
0
12
13
Less than 1 Year
1-3 Years
3-5 Years
5-10 Years
14
Q3 14
Q3 15
-1.0%
40%
-1.5%
35%
-2.0%
30%
Surplus funds with a maturity less than 1 year rose to 43.5% in Q3 2015, up from 39.8% in Q3 2014.
The yield curve steepened in November (as measured by the difference between the 3-year Treasury interest rate and the fed funds interest
rate) to 111 basis points.
Longer term investments as a percent of surplus funds fell significantly over the last year; 5-10 year investments fell to 7.4% of surplus funds
from 8.6% a year earlier while 3-5 year investments fell from 23.6% to 18.5%.
28
Federal Agency Securities Are Lions Share of Investments
Surplus Funds Distribution
(Percent of Total)
Credit Union Liquidity Flows
$80
55
55
50
50
45
45
$50
40
40
$40
35
$73.3
$70
Billions of Dollars
$60
$55.4
Cash Deposits in Fin. Inst.
35
Share/Deposits in Corp. CUs
$30
30
Government Securities
$20
$10
25
$7.9
$5.0
$3.0
-$0.5 $0.4
$0
-$2.2
-$10
-$20
30
Deposits in Comm. Banks
-$7.0
-$7.8
From 1 month ago
25
Cash Deposits in Corp. CU
Federal Agency Securites
20
20
15
15
10
10
5
5
From 1 year ago
0
Loans
Investments
Savings
borrowings
Capital
0
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Q3
Credit union investment dollars fell $7.8 billion in November due to a strong surge in loans and a draw down in member deposits. Credit
unions drained their liquidity during the last 12 months to fund a $73.3 billion jump in loan balances. The rest of funding for the loan
increase came from a $55.4 billion increase in deposits, a $3.0 billion increase in borrowings and a $7.9 billion jump in capital. The Great
Recession and the associated corporate credit union goings-on caused a shift in the composition of surplus funds. In 2007, credit unions held
33% of their surplus funds in shares/deposits at corporate credit unions. Today, only 5.6% of cash and investments are held at corporate
CUs.
29
Credit Union Savings Section
•
•
•
•
•
•
•
•
Total Savings
Savings Distribution
Savings Interest Rates
Regular Share
Share Draft
Money Market Account
Share Certificate
Borrowings
30
Slower Saving Growth in 2016
Credit Union Savings Growth
Credit Union Savings Growth
(Annual Percent Growth)
16
(by Asset size)
8
15.0
7
14
7.6
2014 Q3
2015 Q3
6.2
12
6
11.3
5.2
10.6
5
Percent
10
8.4
8
6.9
6.2
6
6.1
5.0
4.8
4.1
4
4.8
5.7
4.4
3.6
3.0
4.1
4
3.1
3
2.2
5.2
4.4
2
4.0
4.8
3.0
0.9
1
2
2.9
3
$100$250
$250$500
1.9
1.1
0.2
0
0
< $20 mil $20-$50 $50-$100
00 01 02 03 04 05 06 07 08
09 10 11 12 13 14 15 16 17
$500-$1
bil
>$1 bil
Savings balances rose 5.7% in 2015 due to savings at the gas pump, rising household income, strong job growth, and fast membership
growth. Savings balances are expected to grow 4% in 2016 and only 3% in 2017 as members use more savings for purchases and higher
interest rates lead rate-sensitive members to transfer funds to money market mutual funds. Savings growth disparity is rather large. In the last
12 months ending in Q3 2015, credit unions with assets greater than $1 billion reported a 7.6% increase in savings balances versus credit
unions with assets less than $20 million reported savings growth of only 0.9%.
31
Short-term Liquid Funds Dominate Savings Mix
Savings Distribution
U.S. Credit Unions
60
60
7
Certificates
Share Drafts
50
MMAs
50
45
IRAs
45
40
Regular Shares
Regular Shares
6
35
30
30
25
25
20
20
15
15
10
10
5
5
MMAs
CDs
5
40
35
0
Fed Funds
55
Percent
55
Deposit Interest Rates
versus Fed Funds
4
3
2
1
0
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 15
Q3
0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Regular shares made up 35.1% of total savings in Q3 2015 as members prefer short-term liquid deposits. This is the highest percentage since
2005. Members anticipate the Federal Reserve will raise interest rates soon, and therefore do not want to lock up their funds in term
deposits. Credit union CD interest rates are slowly rising as liquidity tightens at many credit unions reporting strong loan growth. With the
Federal Reserve expected to raise the fed funds slowly during 2016, expect credit union CD and money-market account interest rates to rise
throughout 2016.
32
Surging Saving Growth as Gas Prices Fall
CU Savings Seasonal Factors
CU Savings Growth
1.6%
Seasonally Adjusted
Annualized Growth Rate
18%
17%
16%
15%
14%
13%
12%
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
1.4%
18%
17%
16%
15%
14%
13%
12%
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
1.28%
1.15%
1.2%
1.0%
0.8%
0.6%
0.4%
0.14%
0.2%
0.0%
-0.2%
Jan Feb
-0.17%
Mar
Apr
July
-0.25%
-0.4%
-0.6%
May June
-0.47%
Aug
Sept
Oct Nov Dec
-0.09%
-0.16%-0.19%
-0.25%
-0.46%
-0.52%
-0.8%
Source: CUNA & NCUA.
Credit union savings balances grew at a 7.2% seasonally-adjusted annualized growth rate in November, due mainly to low gas prices
putting more money in members’ pockets.
November’s seasonal factors typically subtract -0.16 percentage points from the underlying savings trend growth.
33
Rapid Regular Share Growth
Regular Share Seasonal Factors
CU Regular Share Growth
3.0%
Seasonally Adjusted
Annualized Growth Rate
2.5%
20%
20%
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -2%
-4%
-4%
-6%
-6%
-8%
-8%
2.26%
2.0%
1.57%
1.5%
1.0%
0.37%
0.5%
0.13%
0.0%
Jan Feb
-0.10%
Mar
Apr
May June
July
Aug -0.07%
Sept Oct
-0.5%
Nov
Dec
-0.40%
-0.53%-0.53%
-0.51%
-1.0%
-1.06%-1.07%
-1.5%
-2.0%
Source: CUNA & NCUA.
Credit union regular share balances grew at a 12.9% seasonally-adjusted annualized growth rate in November, due mainly to low gas
prices putting more money in members’ pockets.
November’s seasonal factors typically subtract 0.53 percentage points from the underlying regular shares trend growth.
34
Rapid Share Draft Growth
CU Share Draft Growth
Seasonally Adjusted
Annualized Growth Rate
24%
24%
22%
22%
20%
20%
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
-2%
-2%
-4%
-4%
-6%
-6%
-8%
-8%
Share Draft Seasonal Factors
6.0%
5.5%
4.87%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.08%
1.0%
0.59%
0.57%
0.26%
0.5%
0.0%
-0.5%
Jan
Feb
-1.0%
Mar
Apr -0.05%
May June
-0.81%
Aug
Sept
Oct
Nov -0.12%
Dec
-0.97%
-1.5%
-2.0% -1.76%
-2.5%
July
-1.36%
-2.05%
-3.0%
Source: CUNA & NCUA.
Credit union share draft balances grew at a 15.3% seasonally-adjusted annualized growth rate in November.
Seasonal factors typically add 0.59 percentage points to the underlying share draft balance trend growth.
35
Rising Money-Market Account Growth
CU Money Market Growth
Money Market Seasonal Factors
1.5%
Seasonally Adjusted
Annualized Growth Rate
42%
42%
40%
40%
38%
38%
36%
36%
34%
34%
32%
32%
30%
30%
28%
28%
26%
26%
24%
24%
22%
22%
20%
20%
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -2%
-4%
-4%
-6%
-6%
1.02%
1.01%
1.0%
0.68%
0.5%
0.16%
0.01%
0.0%
Jan
Feb
Mar
Apr
May June
July
Aug
Sept
Oct Nov Dec
-0.11%
-0.21%
-0.28%
-0.28%
-0.5%
-0.60%
-0.56%
-1.0%
-1.09%
-1.5%
Source: CUNA & NCUA.
Credit union money-market account balances grew at a 7.9% seasonally-adjusted annualized growth rate in November, due mainly to low
gas prices putting more money in members’ pockets.
November’s seasonal factors typically subtract 0.28 percentage points from the underlying money-market account balance trend growth.
36
Resurgent Share Certificate Growth
CU Share Certificate Growth
Seasonally Adjusted
Annualized Growth Rate
30%
30%
28%
28%
26%
26%
24%
24%
22%
22%
20%
20%
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -2%
-4%
-4%
-6%
-6%
-8%
-8%
Share Certificate Seasonal Factors
1.0%
0.8%
0.6%
0.60%
0.57%
0.4%
0.20%
0.2%
0.13%
0.09%
0.04%
0.0%
Jan
Feb
Mar
Apr
May June
July
-0.2%
-0.22%
-0.23%
Nov
Dec
-0.31%
-0.4%
-0.6%
Aug Sept Oct
-0.13%
-0.17%
-0.49%
-0.8%
-1.0%
Source: CUNA & NCUA.
Credit union share certificate balances rose a 2.1% seasonally-adjusted annualized growth rate in November.
November’s seasonal factors typically add 0.13 percentage points to the underlying share certificate trend growth.
Members will begin shifting funds from regular shares to CDs and money-market mutual funds when short-term interest rates rise later this
year
37
Falling IRA Growth
CU IRA Growth
Seasonally Adjusted
Annualized Growth Rate
22%
22%
20%
20%
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
-10%
-12%
-12%
-14%
-14%
-16%
-16%
IRA Seasonal Factors
1.0%
0.84%
0.73%
0.8%
0.6%
0.32%
0.4%
0.25%
0.22%
0.2%
0.06%
0.0%
Jan
Feb
Mar
Apr
May June
July
Aug
Sept
Oct
Nov
Dec
-0.2%
-0.4%
-0.33%
-0.33%
-0.26%
-0.31%
-0.6%
-0.59%
-0.66%
-0.8%
-1.0%
Source: CUNA & NCUA.
Credit union IRA balances fell at a 14.9% seasonally-adjusted annualized growth rate in November.
November’s seasonal factors typically subtract 0.26 percentage points from the underlying IRA balance trend growth.
38
Resurgent Borrowings
CU Borrowings Growth
Seasonally Adjusted
Annualized Growth Rate
150%
150%
140%
140%
130%
130%
120%
120%
110%
110%
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
-10% 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -10%
-20%
-20%
-30%
-30%
-40%
-40%
-50%
-50%
Borrowings Seasonal Factors
10%
9%
8%
7.18%
7%
6%
4.86%
5%
4.22%
4%
2.46%
3%
2.12%
2% 1.25%
1%
0%
-1%
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
-1.34%
-2%
-1.97%
-3%
-2.67%
-4%
-5%
-4.29%
-4.30%
-6%
-7%
-6.68%
-8%
-9%
-10%
Source: CUNA & NCUA.
Credit union wholesale borrowings fell at a 24.8% seasonally-adjusted annualized growth rate in November.
November’s seasonal factors typically subtract 1.34 percentage points from the underlying borrowings trend growth.
Up until recently credit unions turned more and more to wholesale funds to help fund some of the recent surge in loan demand.
39
Credit Union Earnings Section
•
•
•
•
•
•
•
•
•
•
•
Return on Equity
Yield on Assets
Cost of Funds
Net Interest Margin
Operating Expenses
Fee Income
Other Income
Provision for Loan Loss
Net Income
Capital Ratio
Asset Growth
40
Stable Return on Equity
Return on Equity
Credit Union Return on Equity
(Net Income to Capital)
12
10.9
10.6
10
9
9.4
7.9
7.8
8
8
9.0 8.9
8.7
8.5
8.3
(by Asset size)
10
2015 Third Quarter
6.7
6.0 5.9
Percent
6
5.5
5.0
4.2
4
4.9 4.9
5
4.0
4
3.4
2.7
3
2
1.5
1
-2
01
02
03
04
05
06
07
08
2.1
2
0
00
7.4
7
7.6
6.6
6
9.3 9.2
2014 Third Quarter
09
-1.2
10
11
12
13
14
15
16
0.6 0.5
0
< $20 mil $20-$50 $50-$100
$100$250
$250$500
$500-$1
bil
>$1 bil
Credit union return-on-equity ratios fell to 8.9% in 2015. A higher ROE ratio allows for faster asset growth, which then leads to lower
operating expense ratios, higher profit margins, and ultimately greater earnings. The disparity between large and small credit unions’ returnon-equity ratios remained large in 2015. Credit unions with assets exceeding $1 billion reported ROE ratios of 9.2%, more than twice that
reported by credit unions with assets less than $100 million.
41
Rising Yield on Assets
Yield on Assets
Credit Union
Yield on Assets
(Percent of Average Assets)
8
7.34
(by Asset size)
6.93
7
350
5.89
6
2014 First 9 Months
2015 First 9 Months
5.89
5.56
5.52
5.03
5
4.97
340
4.91
4.72
342
341
339
340
339
340
338
338
336
4.05
4
3.62
3.36 3.36 3.35 3.40
3
Basis Points
4.46
334
332
330
333
329
326
320
2
1
310
0
< $20 mil $20-$50 $50-$100
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
$100$250
$250$500
$500-$1
bil
>$1 bil
Credit union loan growth of 10-11% in 2015-16 will shift assets away from low yielding investments and into higher yielding auto and
mortgage loans. This will push credit union assets yields above the record low of 3.36% set in 2014. Faster economic growth in 2016 will
put upward pressure on interest rates with the 10-year Treasury crossing over 2.5%. This will push mortgage rates up and boost earnings.
The Fed will raise the fed funds interest rate slowly in 20165 raising the yields on short-term credit union investments. Aggressive loan
pricing by banks returning to the consumer lending arena will, however, lower net returns on some loans
42
Rising Cost of Funds
Cost of Funds
Credit Union
Cost of Funds
(Percent of Average Assets)
0
(by Asset size)
00
01
02
03
04
05
06
07
08
09
10
11
12
13
-0.5
-0.59
-0.72
-1
14
15
-0.54 -0.51
16
80
2014 First 9 Months
2015 First 9 Months
70
-0.61
64
60
-0.92
60
-1.41
-1.65
-2
-2.28
-2.5
-1.73
-1.73
-2.35
-2.41
-2.78
-3
Basis Points
-1.21
-1.5
50
40
28
31
29
40
43 42
36
35
30
30
42
39
31
20
10
-3.5
-3.35
-3.56
-4
0
< $20 mil $20-$50 $50-$100
$100$250
$250$500
$500-$1
bil
>$1 bil
Rising short-term interest rates in 2016 will increase credit union cost of funds from the record low mark of 0.51% set in 2015. The rise will
be modest as excess liquidity will allow deposit interest rates to lag increases in market interest rates. With almost all member certificate of
deposits repriced to today’s low interest rates, the funding cost increase will come sooner than it did during the last rising interest rate cycle
of 2004. Rising interest rates will encourage members to shift funds out of core deposits and into higher yielding money-market accounts, a
liability mix effect.
43
Falling Net Interest Margins
Net Interest Margin
(Percent of Average Assets)
4
(by Asset size)
3.78
350
3.58 3.61
3.6
2014 First 9 Months
2015 First 9 Months
340
3.38
3.4
330
3.31
3.25
3.24
3.17
3.2
3.11
3.15 3.18
320
3.13
3
2.90
2.8
2.82 2.84 2.79
2.77
Basis Points
3.8
Credit Union
Net Interest Margin
310
300
308
306
302
299
299
301
295 295
297 298
290 291
290
2.6
280
2.4
270
271
267
260
2.2
250
2
< $20 mil $20-$50 $50-$100
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
$100$250
$250$500
$500-$1
bil
>$1 bil
Net interest margins will decrease in 2016 cost of funds rise faster than asset yields. Credit union net interest margins reached the lowest in
history in 2013 due to historically low interest rates and excess liquidity. Deregulation over the last 30 years has increased competition in the
financial services arena, resulting in lower net interest margins. For an individual CU, margins will also be determined by local market
demographics: population growth, median household income, local industry, age trends. Margin compression is forcing CUs to increase the
array of financial products and services offered while at the same time boosting efficiency and productivity.
44
Falling Operating Expense Ratios
Operating Expenses
Credit Union
Operating-Expense-to-Assets
(Percent of Average Assets)
-2.90
-2.95
(by Asset size)
00 01
02
03 04
05 06
07
08 09
10 11
12 13
14
15 16
440
-3.08
-3.10-3.10
-3.15
-3.20
-3.19
-3.25
-3.16
-3.19
-3.20
-3.24
-3.26
-3.30
-3.45
-3.14
-3.16
-3.26
Basis Points
380
-3.10
-3.40
2015 First 9 Months
400
-3.05
-3.35
2014 First 9 Months
420
-3.00
360
362 358
364 366
365 366
352 350
360
349
337 340
340
320
300
280
-3.33
-3.35
-3.39
-3.35
-3.38
269
276
260
240
< $20 mil $20-$50 $50-$100
$100$250
$250$500
$500-$1
bil
>$1 bil
Operating expense ratios will decline slightly over the next 2 years as the growth rate in assets exceed that of operating expenses. Corporate
stabilization assessments are expected to be zero in 2016 because the combination of corporate capital written off ($5.6 billion) and total
assessments paid to date ($4.8 billion) is close to what the losses are likely to be. NCUSIF premiums are expected to be zero in 2016 due to
a build up of reserves for insurance losses and less CU failures. However, credit unions will experience rising compliance costs for new
Dodd-Frank Act regulations and new Consumer Financial Protection Bureau rules.
45
Falling Fee Income Ratios
Fee Income
Credit Union
Fee Income
(Percent of Average Assets)
1
(by Asset size)
0.9
0.79
0.8
0.7
0.82
0.87 0.86
0.85
90
0.82
0.78
0.74
0.66
0.74 0.74
0.69 0.69
79 77
80
70
0.64 0.63
60
Basis Points
0.6
0.5
0.4
0.3
79 78
73
69 69
0.71
0.66
81 80
76
59 59
51
50
48
40
30
20
0.2
10
0.1
0
0
2014 First 9 Months
2015 First 9 Months
< $20 mil $20-$50 $50-$100
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
$100$250
$250$500
$500-$1
bil
>$1 bil
Fee income as a percent of average assets will continue its 7 year decline as the economic recovery lowers penalty fees. Moreover, web and
mobile banking is providing members easier access to account balance information which reduces penalty fees. Fees from checking accounts
serves as the single largest source of credit unions’ fee income. The average percentage of fee income derived from nonsufficient funds
(NSF), overdraft, and courtesy pay fell to 34% in 2013. The CFPB’s expected focus on checking/ODP in 2015 puts a big income stream at
risk, and continuing issues with overdraft revenue could prove challenging.
46
Stable “Other Income” Ratios
Other Income
Credit Union
Other Income
(Percent of Average Assets)
0.8
0.72
0.71
0.7
0.6
0.55
90
80
0.57
70
0.41
Basis Points
0.4
0.37
0.36 0.36
74
0.29
0.2
67 67
52 53
46 46
50
40
30
67
61
60
0.43 0.44
0.4
83
2014 First 9 Months
2015 First 9 Months
0.49 0.5
0.5
0.3
(by Asset size)
0.69
0.68 0.68
34 35
23 23
20
10
0.1
0
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
< $20 mil $20-$50 $50-$100
$100$250
$250$500
$500-$1
bil
>$1 bil
The end of the mortgage refinance boom will reduce loan origination fees and “gains on sale” of mortgages over the next 2 years.
Interchange income may decline in 2016 if interchange rates fall more than the increase in card transactions. Merchants have incentives to
move customers to new alternate low-cost payment systems, reducing the market power of the card networks. The interchange fee cap rule
(October 1, 2011) capped the maximum fee charged per debit card transaction to 21 cents (plus an additional 2-3 cents for fraud prevention)
for institutions greater than $10 billion.
47
Rising Provisions for Loan Loss Ratios
Provisions for Loan Losses
Credit Union
Provision for Loan Losses
(Percent of Average Assets)
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
(by Asset size)
16
40
2014 First 9 Months
-0.2
-0.26 -0.28
-0.31
-0.35 -0.34 -0.35
-0.35
35
-0.31 -0.33
-0.39
-0.43
-0.50
-0.6
-0.8
Basis Points
-0.4
-0.31 -0.33
36
2015 First 9 Months
27
24
25
21
-0.78
-0.85
29
30
20
22
22
25
26
25
23
21
21
19
-1
15
-1.11
-1.2
< $20 mil $20-$50 $50-$100
$100$250
$250$500
$500-$1
bil
>$1 bil
Provision for loan loss ratios will increase slightly in 2016 due to strong loan growth. But falling loan net charge-offs, tight underwriting
standards, an improving labor market, rising home prices and a still overfunded allowance for loan loss account will keep loan loss
provisions below long term levels. Many credit unions still have over-funded allowance for loan losses. leading to provisions lower than net
chargeoffs over the last few years. Home prices are expected increase 4% in 2016, reducing the number of mortgages at risk of foreclosure.
48
Falling Return-on-Asset Ratios
Net Income
(Percent of Average Assets)
107
102
95
Corporate Stabilization Expense
(basis points of average assets)
104
95
85
80
Basis Points
(by Asset size)
82
2009 = 3 bps
2010 = 11 bps
2011 = 18 bps
2012 = 7 bps
2013 = 6 bps
2014 First 9 Months
77
95
82
84
68
80 79
80
70
60
50
74
66 65
56 54
60
49
43
40
31
31
20
18
20
99
2015 First 9 Months
100
64
40
120
Basis Points
120
100
Credit Union Return on Assets
35
17
12
0
0
00 01 02 03 04 05
06 07 08 09 10
11 12 13 14 15 16
< $20 mil $20-$50 $50-$100
$100$250
$250$500
$500-$1
bil
>$1 bil
Credit union return-on-asset ratio will decline to 0.70% in 2016. Rising asset yields – due to faster loan growth and modestly higher market
interest rates - will not outpace higher funding costs. This will reduce net interest margins. Expect loan loss provision expense to rise but
operating expense ratios to fall.
The disparity between large and small credit unions return-on-asset ratios remained large in Q3 2015. Credit unions with assets exceeding
$1 billion reported ROA ratios of 0.95, more than twice that reported by credit unions with assets less than $100 million.
49
Rising Capital Ratios
Net Capital-To-Asset Ratios
Net Capital-to-Assets
(by Asset size)
12
16
15
11.5
11.5 11.4
11.4
11.2
11.1
10.9
11
2014 Third Quarter
10.9 10.9
14
10.6
10.5
12
10.4
10.5
10.2
12 12.1
11.411.5
10.810.9
11
10.1
10
13.9
13.7
13
10.8 10.8
10.5
2015 Third Quarter
11
11.2
11 11.1
10.710.8
9.9
10
9
9.5
8
< $20 mil $20-$50 $50-$100
9
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
$100$250
$250$500
$500-$1
bil
>$1 bil
Credit union capital-to-asset ratios will continue to rise in 2016 as capital accumulation outpaces asset growth. Credit unions continue to
build their buffers above the 7% target considered to be “well capitalized” under NCUA’s Prompt Corrective Action rule. By the end of 2016,
capital ratios will approached the record high set back in 2006.
50
Slowing Asset Growth and Wider Inequality
Credit Union Asset Growth
Credit Union Asset Growth
(Annual Percent Growth)
16
8.8
2014 Third Quarter
14.4
8
14
2015 Third Quarter
6.7
7
11.7
12
(by Asset size)
9
5.7
6
10
5.2
Percent
9.5
8.6
8
7.2
6.4
6.2
6
6.2
6.0
5.7 5.9
5.1
4.8 4.6
5.0
3.9
4
5
4.5
3.8
4
3.3
3
2.3
2
3.3
1.0
1
2
6.7
3.4
2.3
1.3
0.2
0
0
< $20 mil $20-$50 $50-$100
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
$100$250
$250$500
$500-$1
bil
>$1 bil
Asset growth is expected to slow in 2016 as deposit growth slows. Asset growth will outpace savings growth by one percentage point,
however, due to fast rising borrowings and capital.
The average credit union asset growth of 5.9% in 2015 masked a wide growth rate disparity between large and small credit unions. During
the last 12 months ending in Q3 2015, credit unions with assets greater than $1 billion reported asset growth of 8.8% while credit unions with
assets less than $20 million reported asset growth of 1.0%.
51
Credit Unions & Members Section
•
•
Number of Credit Union
Credit Union Members
52
Credit Union Consolidation Accelerates
Annual Decline in
Number of Credit Unions
Number of CUs
(by Asset size)
3,500
2014 Third Quarter
400
3,000
380
2,994
2015 Third Quarter
2,755
363
360
340
2,500
353
332
332
328
331
2,000
315
320
Number of CUs
November 2015 = 6,264
308
300
290
281
280
295
1,2071,167
275
266
1,000
257
260
1,500
282
764 757
716 717
246
500
234
240
220
340 339
231 231
225 247
$500-$1
bil
>$1 bil
0
200
< $20 mil $20-$50 $50-$100
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
$100$250
$250$500
As of November 2015, CUNA estimates 6,264 credit unions were in operation. During the last 12 months the number of credit unions fell by
290, above the 301 annual decline set one year ago. The pace of consolidation in the credit union system is accelerating due to the following
factors: retiring baby-boomer CEOs, rising regulatory/compliance burden, record low net interest margins, rising concerns over scale and
operating efficiency, rising competitive pressures and members’ demand for ever more products, services and access channels.
53
Membership Growth Surges
Credit Union
Membership Growth
Credit Union
Membership Growth
(Annual Percent Growth)
4
(by Asset size)
3.8
7
3.5
6
3.1
3
2015 Third Quarter
3.0
2.9
2.2
2
2.1
1.4
1.5
1.4
1.5
1.4
1.2
1.1
2.7
3
1.8
1.6
5.0
4
Percent
2.3
6.4
4.6
5
2.5
2.5
6.1
2014 Third Quarter
1.9
2
1.5
1
1.2
0.5 0.5
0
1
0.6
-1
0.5
-2
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
< $20 mil $20-$50 $50-$100
-0.5
-0.8
$100$250
$250$500
$500-$1
bil
>$1 bil
-1.5
-1.8
-3
Credit unions should expect membership growth to exceed 3% in 2016 due to strong job growth. This will push the total number of credit
union memberships to 108 million by year end 2016, which is equal to 33% of the total U.S. population. In the last 12 months ending in Q3
2015, credit union with assets over $1 billion reported 6.4% membership growth, compared with less than 1% for credit unions with assets
less than $100 million. The 3,038 credit unions with assets less than $20 million reported a 1.8% decline in memberships.
54
Rapid Membership Growth
CU Membership Seasonal Factors
CU Membership Growth
0.4%
Seasonally Adjusted
Annualized Growth Rate
0.3%
6.0%
6.0%
5.5%
5.5%
5.0%
5.0%
4.5%
4.5%
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
0.0%
0.2%
0.16%
0.12%
0.1%
0.06%
0.05%
0.01%
0.00%
0.0%
Jan Feb
-0.02%
Mar
Apr
May June -0.01%
July Aug
-0.1%
Sept
Oct
Nov Dec
-0.05%
-0.13%
-0.2%
-0.20%
-0.3%
-0.4%
-0.35%
-0.5%
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: CUNA & NCUA.
Credit union memberships grew at a 4.6% seasonally-adjusted annualized growth rate in November.
November’s seasonal factors typically subtract 0.05 percentage points from the underlying membership trend growth.
The rapid membership gain began with Bank Transfer Day on November 5, 2011 and is being maintained by the recent rapid pace of new
job creation and the tremendous growth in credit union auto lending.
55
Economic Forecast
January 2016
Actual Results
5Yr Avg
2014
2015:1
Quarterly Results/Forecasts
2015:2
2015:3
2015:4
Annual Forecasts
2015
2016
Growth rates:
5.10%
2.20%
1.25%
1.75%
5.10%
3.00%
1.75%
1.75%
4.90%
0.13%
2.25%
2.12%
0.13%
2.25%
2.12%
1.00%
2.75%
Economic Growth (% chg GDP)*
Inflation (% chg CPI)*
Core Inflation (ex. food & energy)*
Unemployment Rate
2.20%
1.99%
1.65%
8.04%
2.40%
1.61%
1.75%
6.20%
0.64%
3.90%
2.00%
2.50%
5.57%
5.30%
5.10%
Federal Funds Rate
10-Year Treasury Rate
10-Year-Fed Funds Spread
0.12%
2.54%
2.42%
0.09%
2.54%
2.45%
0.11%
2.04%
1.93%
0.13%
2.36%
2.23%
0.14%
2.17%
2.03%
1.75%
.
*Percent change, annual rate. All other numbers are end-of-period values.
56
Credit Union Forecast
January 2016
Actual Results
5Yr Avg
2014
Growth rates:
Savings growth
Loan growth
Asset growth
Membership growth
2015:1
Quarterly Results/Forecasts
2015:2
2015:3
2015:4
Annual Forecasts
2015
2016
4.8%
4.5%
4.8%
2.0%
4.5%
10.4%
5.7%
3.1%
3.6%
1.4%
3.2%
0.9%
0.4%
3.4%
0.9%
1.3%
0.7%
3.4%
1.0%
1.3%
0.4%
3.1%
0.9%
0.5%
5.1%
11.3%
6.0%
4.0%
3.0%
10.0%
4.0%
3.0%
Liquidity:
Loan-to-share ratio**
71.3%
75.1%
73.5%
75.7%
77.7%
79.8%
79.8%
85.2%
Asset quality:
Delinquency rate**
Net charge-off rate*
1.27%
0.77%
0.85%
0.49%
0.69%
0.47%
0.74%
0.46%
0.78%
0.46%
0.70%
0.45%
0.73%
0.45%
0.65%
0.45%
Earnings
Return on average assets (ROA)*
0.72%
0.80%
0.78%
0.82%
0.77%
0.75%
0.75%
0.70%
Capital adequacy:
Net worth ratio**
10.5%
11.0%
10.8%
10.9%
11.0%
11.1%
11.1%
11.4%
*Annualized Quarterly Data. **End of period ratio. Additional information and updates available on our MCUE website.
57
The Credit Union versus Human Heart Analogy
Banks and Credit Unions are to the economy
what the heart is to the human body
Money  Blood
Deposits  Deoxygenated (blue) Blood
Loans  Oxygenated (red) Blood
(Loans like blood lead to productive outcomes)
Loan departments collect information  Lungs collect oxygen
Capital  Heart Muscle
Banks/CUs Allocate Capital  Aorta Artery Allocates Blood
(to Most Productive Use)
Toxic Assets/Loans (MBS)  Plaque
Banking Crisis  Heart Attack
Government Intervention  Defibrillator
$2.6 Trill Excess Reserves/Cash  Atrial Fibrillation (Atrium Blood Pooling)
(False Economic Signals  Abnormal Electrical Signals)
58