Economic & Credit Union
Monthly Update
August 2015
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
[email protected]
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
Rising 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
4.64.3
1.9
1.1
0.6
0.5
0.1
12:01
13:01
3.3
2.1 2.3
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
-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 2.3% annualized rate in the 2nd quarter, below the long-run natural rate of 2.5%, due to falling energy
investment and the rising value of the dollar. Final sales added 2.4 percentage points but the change in inventories subtracted 0.1 percentage
points. Economic growth should accelerate to 3.0% in the second half of 2015, and 3.3% in 2016, above the 2.4% pace set in 2014. The
economy is operating with a -2.6% “output gap” but is rapidly approaching its potential level of output. The Federal Reserve will therefore
begin increasing the fed funds interest rate later in 2015.
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
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
Source: Department of Labor.
The labor market added 215,000 jobs in July, and over 3 million during the last 12 months. Average hourly earnings rose 0.2% in July and
2.1% during the last year. Rising earnings and low inflation are pushing up real earnings. Expect monthly job gains to average over 225,000
in 2015, bringing the unemployment rate close to the 5% natural rate by the spring of 2016. The unemployment rate remained at 5.3% in
July, which corresponds to 8.3 million unemployed workers, as 436,000 people left the labor force. Underemployment fell to 10.4% or 16.7
million (8.3 mil. unemployed, 6.5 mil. involuntarily part time, 1.9 mil. marginally attached). Strong employment gains will increase
household incomes, confidence and desire to borrow and spend. Expect loan growth to remain strong in 2016.
4
Inflation Below Target and Rising 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
-1%
10
11
12
13
14
15
16
-1%
Headline
-2%
Nominal Interest Rates = Real Rates + Expected Inflation
4.5
Core (excludes food and energy)
Federal Reserve's 2% Target
-3%
-3%
5.0
4.5
Nominal Rates
4.0
Expected Inflation
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
0.5
Real Interest Rates
0.0
-2%
6.0
5.5
3.5
2%
TIPS (10-Yr)
5.5
5.0
3%
Inflation Expectations
-0.5 07
-1.0
08
09
10
11
0.0
12
13
14
15
16 -0.5
-1.0
Headline inflation rose 0.1% in July and 0.2% during the last 12 months while core inflation rose 0.1% in July and 1.8% during the last
year, both below the Federal Reserve’s target of 2%. There are 5 factors keeping inflation low: the negative output gap leads to idle capacity,
the unemployment rate above the natural unemployment rate keeps wage growth slow, 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 in August because of
falling inflation expectations (due to falling oil prices) which more than offset rising real interest rates (due to a sell-off of safe Treasury
bonds).
5
Rising Interest Rates and Steeping Yield Curve
Interest Rates and Recessions
Treasury Yield Curves
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
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 15 16 17 18
Recession
Baa
Fed Funds
10-yr Treas
Forecast
Yield to Maturity
1988-2015
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
July 2015
June 2015
Dec. 2016
0.5
0.5
0.0
0.0
12 3
5
10
15
20
Years to Maturity
25
30
The Federal Reserve will raise short-term interest rates by 1.25 percentage points per year for 3 years starting in the forth quarter of 2015.
The Fed believes the neutral fed funds rate is 3.0-3.5%. Interest rates will “normalize” in 2018 at levels below previous plateaus due to
lower real interest rates and lower expected inflation. It appears the Fed will raise the Fed funds interest rate later this year but 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
8,000
21
20
20
19
19
18
18
17
17
16
16
15
15
14
14
13
13
12
12
11
11
10
10
Recession
New Auto Sales
9
8
05
06
07
08
09
10
11
12
13
Source: Autodata Corp.
14
15
4,250
Recession
Sales (Left Axis)
7,500
4,000
Inventories (Right Axis)
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
21
Thousands
Millions of
Units
9
8
16
3,000
1,750
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
U.S. vehicle sales rose to a 17.5 million unit seasonally-adjusted annualized basis in July, up from 17.0 million units in June. Sales were up
6.2% year over year. Consumer fundamentals remain favorable to drive sales into the future. Existing home sales rose 2.0% in July, rising to
a 5.59 million annual rate, and rose 10.3% from July 2014. Home inventories remain tight leading to home prices rising 5% in 2015. Seven
factors have coalesced to bolster the housing market through 2016: 1) job growth greater than 200,000 per month, 2) home buyers
expectations of rising interest rates in the near future, 3) rising real average weekly earnings, 4) increasing household formation, 5) lower
secondary-market down-payment requirements, 6) improving household balance sheets, and 7) rising consumer confidence
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
140
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
150
Recession
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
The U.S. dollar rose 20% over the last year due to expectations of rising U.S. interest rates global geopolitcal 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 price of a barrel of oil averaged $59.8 in June 2015, down from $105.8 one year ago, a 43% decline. This will slow energy investment
but boost consumer spending.
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
OFHEO House Price Index
(4-Qtr Percent Change)
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
-5
Recession
Nominal Index
-10
-10
-15
-15
Real Index
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Household balance sheets have improved over the last year due to rising stock prices and home prices.
Stock prices rose 6.1% over the last year.
Home prices rose 5% over the last year, due to a lack of housing inventory for sale colliding with rising home demand.
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]
[Year Over Year % Change]
1.0
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 -1
-2
-2
Recession
-3
-3
Consumption
-4
-4
-5
-5
Income
-6
-6
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
-0.1 June July Aug. Sept. Oct. Nov. Dec Jan. Feb. Mar. April May June
2015
-0.2
-0.3
Consumption
-0.4
Income
-0.5
Personal income rose 0.4% in June and 4.1% year over year, due to a rise in asset income growth. Wage income growth deccelerated to
0.2%. Nominal spending rose in June by 0.2% (led by durable good spending) and 3.2% 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 windfall and/or pay down debt. Now they are starting to spend the
gas windfall. Household balance sheets have improved over the last year as stock prices and home prices rose 6% and 5%, respectively. 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
16
40
14
35
12
30
10
25
8
20
6
15
4
10
2
5
0
19%
19%
18%
18%
17%
17%
16%
16%
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
Consumer credit rose $20.7 billion in June, an acceleration from $16.5 billion in May. Consumer credit rose 6.5% over the last year
(revolving rose 3.3% and nonrevolving rose 7.8%). 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 to disposable personal income) fell to a record low 9.91% in the
fourth quarter of 2014, down from 13.17% reported in the fourth quarter of 2007. Falling interest rates and debt levels both caused the
decline. Low debt payments are freeing 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
150
150
140
140
130
130
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
40
30
20
1
Recession
40
30
Confidence
20
1
10
0
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Sentiment
0
10
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
The saving rate (savings / disposable personal income) rose to 4.8% in June from 4.6% in May. 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 fell to 90.9 in July, due to consumers’ concerns about the future job market and wage growth.
Consumer Sentiment Index fell to 93.1 in July, but should be only a temporary decline due to strengthening consumer fundamentals.
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
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
Source: BEA & Federal Reserve.
During the first quarter of 2015, the real annual purchasing power of financial assets are the highest in U.S. history at $5.22 per dollar of
disposable income (5.22 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 $2.24 per dollar of
disposable income (2.24 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%
700%
700%
130%
130%
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%
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
Source: BEA & Federal Reserve.
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
Source: BEA & Federal Reserve.
During the first quarter of 2015 , households’ debt burden ratio (debt-to-disposable-income) fell to 1.02, 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 $6.39 per dollar of disposable income (or 6.39 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
10.7
2014 Q1
11.0
10.0
10
(by Asset size)
16
14
10.0
13.3
2015 Q1
12
7.5
7.0
11.1
10.4
7.3
10
6.7
Percent
8
7.8 7.6
6
4.8
4
9.1
7.7
8
6.0
1.2
8.1
6.3
6
3.9
4
2
9.5
2.9
1.2
2
4.2
2.8
1.6
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 11% 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 is rather large.
In the last 12 months ending in Q1 2015, credit unions with assets greater than $1 billion reported an 13.3% increase in loan balances
versus credit unions with assets less than $20 million reported loan growth of only 2.9%.
17
Improving Credit Quality As Unemployment Falls
CU Delinquency Rate
Versus
Unemployment Rate
12
CU Net Chargeof Rate
Versus
Unemployment Rate
2
14%
1.4%
Unemployment Rate (Left Axis)
Net Chargeoff Rate (Right Axis)
13%
11
1.75
10
9
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%
1.5
8
1.25
7
6
1
5
0.75
4
3
2
1
0.5
Recession
Unemployment (Left Axis)
0.25
Delinquency (Right Axis)
0
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
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 0.65% in June,
from 0.85% set in June 2014. Today’s delinquency rate is now below 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 chargeoff rates fell to 0.47% in Q1 2015, from 0.53% in Q4 2014 and 0.50% in Q1 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 11% seasonally-adjusted annualized growth rate in June, similar to the pace set during the credit
boom of 2003-2005. June’s seasonal factors usually add 0.46 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 19.6% seasonally-adjusted annualized growth rate in June, slightly lower than the pace set
in the last few months. June’s seasonal factors usually add 0.90 percentage points to 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 increase 4% in 2015 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 13.5% seasonally-adjusted annualized growth rate in June, a deceleration when compared
to the last few months. June’s seasonal factors usually add 0.59 percentage points to 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 7.6% seasonally-adjusted annualized growth rate in June, due to rising consumer confidence and
spending on durable goods. June’s seasonal factors usually add 0.62 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 12.7% seasonally-adjusted annualized growth rate in June, due to rising home prices
and improving consumer confidence. June’s seasonal factors usually add 0.16 percentage points to the underlying trend growth rate as
households buy cars and take summer vacations. 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
Modest 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 5.7% seasonally-adjusted annualized growth rate in June. June’s
seasonal factors add 0.50 percentage points to the underlying trend growth rate. Credit union purchase mortgage originations should
increase 15% in 2015 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 9.6% seasonally-adjusted annualized growth rate in June. June’s
seasonal factors usually add 0.18 percentage points to 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 But Yields Are Rising
Credit Union
Yield on Surplus Funds and Loans
CU Surplus Funds
(Cash + Investments)
75%
40%
73%
38%
9.0%
9.0%
Yield on Surplus Funds
Yield on Earnings Assets
8.0%
8.0%
Yield on Loans
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%
Recession
24%
1.0%
1.0%
53%
Surplus Funds-to-Assets (Right Axis)
22%
0.0%
Loan-to-Asset (Left Axis)
50%
20%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
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 31.7% of assets in June, below the 34.7% in June 2014. Investments as a percent of assets fell over the last 2 years as
loans growth accelerated. Loans now make up 64% of assets, up from the cyclical low point of 57% set in March 2013. The yield on
surplus funds rose to 1.16% in Q1 2015, up from 1.13% in Q1 2014. Loan yields fell to 4.67% in Q1 2015, the lowest in credit union
history, from 4.94% in Q1 2014. With loan balances expected to grow another 11% this year ($76.4 billion), expect surplus funds as a percent
of assets to fall below 30% by year end, the lowest level of liquidity since February 2009.
27
Rising Investment Maturities as Yield Curve Steepens
Percent of Surplus Funds Liquid Versus
Yield Curve Slope
Maturity of Surplus Funds
(% of Total)
50
46.9
45
42.5
3.0%
45.2
44.7
42.4
30
28
23.9
21.2
25
20
27.7
27.5
20.9
22.3
21.1
18.7
16.9
15
10.5
10
Percent of Surplus Funds < 1 maturity (Right Axis)
75%
2.0%
3-Yr Treasury - Fed Funds Rate (Left Axis)
70%
6.5
1.5%
65%
1.0%
60%
0.5%
55%
0.0%
10.1
7.7
7.0
80%
2.5%
40
35
Recession
-0.5%
50%
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
Q1 14
Q1 15
-1.0%
40%
-1.5%
35%
-2.0%
30%
Surplus funds with a maturity less than 1 year rose to 43.3% in June 2015, up from 41.9% during June 2014.
The yield curve slope steepened in June (as measured by the difference between the 3-year Treasury interest rate and the fed funds interest
rate) to 94 basis points from 86 basis points in May which led to a smaller share of investments invested short term in June than May. Longer
term investments as a percent of surplus funds fell significantly over the last year; 5-10 year investments fell to 7% of surplus funds from
10.1% a year earlier while 1-3 year investments fell from 21.1% to 18.7%.
28
Federal Agency Securities Are Lions Share of Investments
Surplus Funds Distribution
(Percent of Total)
Credit Union Liquidity Flows
$80
$75.0
55
55
50
50
45
45
$50
40
40
$40
35
$70
Billions of Dollars
$60
$52.9
Cash Deposits in Fin. Inst.
35
Share/Deposits in Corp. CUs
$30
30
30
Deposits in Comm. Banks
Government Securities
$20
25
$10.2
$10
$5.0
$1.3
$8.7
-$20
Federal Agency Securites
20
20
$0.4
$0
-$3.5
-$10
25
Cash Deposits in Corp. CU
-$11.9
-$14.9
From 1 month ago
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
Q1
Credit union investment dollars fell $14.9 billion in June due to a strong surge in loans and the paying down of external borrowings. Credit
unions drained their liquidity during the last 12 months to fund a record $75.0 billion jump in loan balances. The rest of funding for the loan
increase came from a $52.9 billion increase in deposits, a $5 billion increase in borrowings and a $8.7 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 2015 and 2016
Credit Union Savings Growth
Credit Union Savings Growth
(Annual Percent Growth)
16
7
15.0
14
6
12
11.3
(by Asset size)
2014 Q1
2015 Q1
5.9
5.5
5
10.6
4.1
Percent
10
8.4
8
6.9
6.2
6.1
6
5.0
5.2
4.8
4.4
4.1
4.4
3.6
4
5.3
4
3.4
3
2.4 2.5
2
3.0
3.3
3
1.3 1.4
4.0
3.0
4.1
1
2
0.3 0.4
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
Savings balances rose 4.4% in 2014, up from 3.6% in 2013. This modest underlying trend growth is being fueled by low gas prices, rising
household income, strong job growth, and fast membership growth. Savings balances are expected to grow 4% in 2015 and only 3% in 2016
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 Q1 2015, credit unions with assets greater than $1 billion
reported a 5.9% increase in savings balances versus credit unions with assets less than $20 million reported savings growth of only 0.4%.
31
Short-term Liquid Funds Dominate Savings Mix
Savings Distribution
U.S. Credit Unions
60
60
7
Certificates
55
Share Drafts
Fed Funds
55
Regular Shares
50
MMAs
50
45
IRAs
45
6
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
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
5
Percent
40
MMAs
CDs
Regular Shares
0
Deposit Interest Rates
versus Fed Funds
4
3
2
1
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 Q1 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 interest rate in Q4 2015, expect credit union CD and money-market account interest rates to
rise this fall.
32
Modest 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 5.3% seasonally-adjusted annualized growth rate in June, due mainly to low gas prices putting
more money in members’ pockets.
June’s seasonal factors typically subtract 0.25 percentage points from the underlying savings trend growth as members used deposit
balances to buy cars and take vacations.
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 7.2% seasonally-adjusted annualized growth rate in June, due mainly to low gas prices
putting more money in members’ pockets.
Seasonal factors (car purchases and vacations) typically subtract 1.06 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%
-1.5%
-2.0% -1.76%
-2.5%
Mar
Apr -0.05%
May June
-0.81%
July
Aug
Sept
Oct
Nov -0.12%
Dec
-0.97%
-1.36%
-2.05%
-3.0%
Source: CUNA & NCUA.
Credit union share draft balances grew at a 11.8% seasonally-adjusted annualized growth rate in June, due mainly to falling oil prices
putting more money in members’ pockets.
Seasonal factors typically subtract 2.05 percentage points from the underlying share draft balance trend growth.
35
Slow 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 4.0% seasonally-adjusted annualized growth rate in June, due mainly to low gas
prices putting more money in members’ pockets.
June’s seasonal factors typically subtract 0.60 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
-0.2%
-0.22%
-0.23%
Aug Sept Oct
-0.13%
-0.17%
Nov
Dec
-0.31%
-0.4%
-0.6%
July
-0.49%
-0.8%
-1.0%
Source: CUNA & NCUA.
Credit union share certificate balances rose a 3.2% seasonally-adjusted annualized growth rate in June.
June’s seasonal factors typically subtract 0.23 percentage points from 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
IRA Seasonal Factors
CU IRA Growth
1.0%
Seasonally Adjusted
Annualized Growth Rate
0.84%
0.73%
0.8%
22%
22%
20%
20%
18%
18%
0.6%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
0.32%
0.4%
0.25%
0.22%
0.2%
0.06%
0.0%
Jan
Feb
Mar
Apr
-0.4%
6%
6%
4%
4%
2%
2%
0%
-2%
-4%
May June
July
Aug
Sept
Oct
Nov
Dec
-0.2%
-0.33%
-0.33%
-0.26%
-0.31%
-0.6%
-0.59%
-0.66%
-0.8%
0%
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
-2%
-4%
-1.0%
Source: CUNA & NCUA.
Credit union IRA balances fell at a -2.3% seasonally-adjusted annualized growth rate in June.
June’s seasonal factors typically add 0.22 percentage points to 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 grew at a 18.9% seasonally-adjusted annualized growth rate in June.
June’s seasonal factors typically add 4.22 percentage points to the underlying borrowings trend growth.
Credit unions are turning 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
Rising Return on Equity
Return on Equity
Credit Union Return on Equity
(Net Income to Capital)
12
10.9
10.6
10
12
9.4
8.5
8.3
7.9
7.8
8
10
9.0 8.9
8.7
7.6
(by Asset size)
2013
2014
9.5 9.5
7.9
8
7.2
6
Percent
6.6
5.5
5.0
4.2
4
6.3 6.2
5.6
6
3.9
4
4.4
4.8
2.8
2
2.1
1.5
2
0.4
0
00
-2
01
02
03
04
05
06
07
08
09
-1.2
10
11
12
13
14
15
16
0.8
0
< $20 mil $20-$50 $50-$100
$100$250
$250$500
$500-$1
bil
>$1 bil
Credit union return-on-equity ratios rose to 9% in 2014, the highest since 2002. 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’ return-on-equity ratios remained large in 2014. Credit unions with assets exceeding $1 billion reported ROE ratios of 9.5%,
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
5.89
5.03
5
342
5.56
5.52
4.97
340
4.91
4.72
2014 Q1
2015 Q1
338
338
337
337
338
337
335
4.05
4
3.62
3.36 3.36 3.49
3.69
3
Basis Points
4.46
333
332
330
331
330
326
325
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 11-10% 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 2015 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 in the fall of 2015 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
14
15
16
80
-0.5
70
-0.59 -0.54 -0.59
-0.72
-1
2014 Q1
2015 Q1
64
-0.78
-0.92
61
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
45
42
40
40
30
30
27
29
42
36
35
32
40
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 2015 will increase credit union cost of funds from the record low mark of 0.54% set in 2014. 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
Rising Net Interest Margins
Net Interest Margin
(Percent of Average Assets)
4
(by Asset size)
3.78
350
3.58 3.61
3.6
2014 Q1
2015 Q1
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 2.91
2.90
2.77
2.8
2.82
Basis Points
3.8
Credit Union
Net Interest Margin
312 311
310
300
302 302
294 296
298
301
296 297
290 290
290
2.6
280
2.4
270
271
266
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 increase over the next two year due to strong loan growth and rising market interest rates. 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)
-2.80
(by Asset size)
00 01
02
03 04
05 06
07
08 09
10 11
12 13
14
15 16
440
-2.90
2014 Q1
2015 Q1
420
400
-3.00
-3.06 -3.05
-3.10
-3.10
-3.20
-3.19 -3.20
-3.26
-3.30
-3.40
-3.14
-3.16
-3.16
-3.19
-3.24
-3.26
Basis Points
380
360
375
373
365
360
367 367
367
357
355
353
337 340
340
320
300
274 273
280
-3.35
-3.39
-3.33
-3.35
-3.38
260
240
-3.50
< $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 2015 and 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
2015 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
(Percent of Average Assets)
1
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
2014 Q1
2015 Q1
0.74 0.74
0.69 0.69
70
0.61
60
Basis Points
0.6
0.5
0.4
0.3
81 80
79 78
73
69 69
0.71
0.63
(by Asset size)
79 77
80
0.66
Credit Union
Fee Income
76
59 59
51
50
48
40
30
20
0.2
10
0.1
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
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
(by Asset size)
0.71
0.68 0.68
0.7
0.63
0.6
0.55
80
0.57
Basis Points
0.41
0.37
0.36 0.36
63
60
0.43 0.44
0.4
0.4
81
2014 Q1
2015 Q1
70
0.49 0.5
0.5
0.3
90
0.65
0.29
0.2
50
45
40
30
30
48
51 53
67
71
62
57
33
23 21
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 2015 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
35
2014 Q1
2015 Q1
-0.2
-0.26 -0.28
-0.31
-0.35 -0.34 -0.35
-0.35
-0.30
30
30
-0.33
28
-0.39
-0.43
-0.50
-0.6
-0.8
-0.78
-0.85
Basis Points
-0.4
-0.31 -0.33
26 26
25
25
24 24
24
24 24
24
23
22
22
20
-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 2015 and 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 2015, reducing the number of mortgages at risk of
foreclosure.
48
Stable Return-on-Asset Ratios
Net Income
(Percent of Average Assets)
107
102
95
Corporate Stabilization Expense
(basis points of average assets)
104
95
85
Basis Points
80
82
2009 = 3 bps
2010 = 11 bps
2011 = 18 bps
2012 = 7 bps
2013 = 6 bps
100
2014 Q1
2015 Q1
77
68
80
80
75
70
60
50
95
73 72
60 60
60
42 43
47 47
40
29
31
20
18
20
98
84
64
40
(by Asset size)
120
Basis Points
120
100
Credit Union Return on Assets
19
8 10
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 remain decline to 0.75% in 2015 and 0.70% in 2016. Rising asset yields – due to faster loan growth
and modestly higher market interest rates - will not outpace higher funding costs, lower 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 Q1 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 Q1
2015 Q1
10.9 10.9
10.9
Basis Points
10.6
10.5
12
10.4
10.5
10.2
11
10.1
10
13.7
13.5
13
10.8
10.5
14
11.9
11.6
11
11.2
10.7
10.4
10.710.8
10.8
10.5
$100$250
$250$500
$500-$1
bil
10.410.6
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
>$1 bil
Credit union capital-to-asset ratios will continue to rise in 2015 and 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
9
14.4
8
14
2014 Q1
2015 Q1
7.4
7
11.7
12
(by Asset size)
6.2
5.8
6
10
Percent
9.5
8.6
8
7.2
6.4
6.2
6
6.2
6.0
5.7
5.1
4.8 4.6
3.9
4
2.9
3
5.0
4.0
3.9
4
4.7
5
3.3
3.6
3.1
2.3
2
1
2
4.6
1.3
0.3
1.6
0.5
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 2015 and 2016 as deposit growth slows. Asset growth will outpace savings growth by one percentage
point, however, due to borrowings rising 30% and capital rising 9%.
The average credit union asset growth of 5.6% in 2014 masked a wide growth rate disparity between large and small credit unions. During
the last 12 months ending in Q1 2015, credit unions with assets greater than $1 billion reported asset growth of 7.4% while credit unions with
assets less than $20 million reported asset growth of 0.5%.
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
400
2014 Q1
2015 Q1
3,071
3,000
380
2,834
363
360
340
353
332
332
328
2,500
2,000
315
320
Number of CUs
June 2015 = 6,378
331
308
300
290
281
280
295
1,2511,198
275
266
1,000
257
260
1,500
282
776 752
723 722
246
500
234
240
220
344 347
236 241
219 237
$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 April 2015, CUNA estimates 6,413 credit unions were in operation, 11 fewer than March. During the last 12 months the number of
credit unions fell by 309, 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)
(by Asset size)
3.5
3.1
3
2.9
7
3.0 3.0
6
2.5
2.5
2.3
5.8 5.8
4.6
5
4.1
2.2
2
2014 Q1
2015 Q1
2.1
4
1.6
1.4
1.5
1.4
Percent
1.8
1.5
1.4
1.2
1.1
1
3
2.1 2.1
2
1.3 1.2
0.6
1
0.2
0.6
0
0.5
< $20 mil $20-$50 $50-$100
-1
-0.8-0.8
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
-2
$100$250
$250$500
$500-$1
bil
>$1 bil
-1.6-1.6
Credit unions should expect membership growth to exceed 3% in 2015 and 2016 due to strong job growth. This will push the total number of
credit union memberships to 104.5 million by year end 2015, which is equal to 33% of the total U.S. population. In the last 12 months ending
in Q1 2015, credit union with assets over $1 billion reported 5.8% 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 1.6% decline in memberships.
54
Rapid Membership Growth
CU Membership Seasonal Factors
CU Membership Growth
0.4%
Seasonally Adjusted
Annualized Growth Rate
0.3%
5.0%
5.0%
4.5%
4.5%
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
2.5%
2.5%
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%
2.0%
2.0%
-0.2%
1.5%
1.5%
-0.3%
1.0%
1.0%
0.5%
0.5%
0.0%
0.0%
-0.20%
-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 3.3% seasonally-adjusted annualized growth rate in June.
June’s seasonal factors typically subtract 0.35 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
June 2015
Actual Results
5Yr Avg
2014
2015:1
Quarterly Results/Forecasts
2015:2
2015:3
2015:4
Annual Forecasts
2015
2016
Growth rates:
5.20%
3.00%
1.25%
1.75%
5.20%
3.25%
1.75%
1.75%
4.90%
0.50%
2.75%
2.25%
0.50%
2.75%
2.25%
1.75%
3.25%
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%
-0.20%
3.00%
3.00%
3.00%
5.57%
5.40%
5.30%
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%
1.97%
1.86%
0.13%
2.50%
2.37%
0.25%
2.50%
2.25%
1.50%
.
*Percent change, annual rate. All other numbers are end-of-period values.
56
Credit Union Forecast
June 2015
Actual Results
5Yr Avg
2014
Growth rates:
Savings growth
Loan growth
Asset growth
Membership growth
Quarterly Results/Forecasts
2015:1
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%
0.6%
3.0%
0.9%
0.7%
0.4%
3.3%
2.0%
0.8%
0.4%
3.0%
0.4%
0.8%
5.0%
10.7%
6.5%
3.0%
3.0%
10.0%
4.0%
3.0%
Liquidity:
Loan-to-share ratio**
71.3%
75.1%
73.5%
75.3%
77.4%
79.4%
79.4%
84.8%
Asset quality:
Delinquency rate
Net charge-off rate*
1.27%
0.77%
0.85%
0.49%
0.68%
0.47%
0.70%
0.45%
0.75%
0.40%
0.70%
0.50%
0.70%
0.45%
0.60%
0.45%
Earnings
Return on average assets (ROA)*
0.72%
0.80%
0.78%
0.75%
0.75%
0.75%
0.75%
0.70%
Capital adequacy:
Net worth ratio**
10.5%
11.0%
10.5%
10.6%
10.5%
10.7%
10.7%
10.9%
*Annualized Quarterly Data. **End of period ratio. Additional information and updates available on our MCUE website.
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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