CREDIT UNION TRENDS REPORT

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1 Percent CREDIT UNION TRENDS REPORT CUNA Mutual Group Economics January 218 (November 217 Data) Highlights During November, credit unions picked-up 417, in new memberships, loan balances grew at a 9.6% seasonallyadjusted annualized pace, while savings balances grew 7.1%. Firms hired 8, workers, nominal consumer spending increased.6% and long-term interest rates decreased 1 basis point. Third quarter economic growth was revised up to 3.2% and rose 2.3% over the last year. At the end of November, CUNA s monthly estimates reported,86 CUs in operation, 9 fewer from one month earlier. Year-over-year, the number of credit unions declined by 248, more than the 221 lost in the months ending in November 2. Total credit union assets rose.% in November, above the.3% rise reported in November of 2. Assets rose 6.4% during the past year due to a 6.7% increase in deposits, and a 7.2% increase in capital. The nation s credit unions increased their loan portfolios by.9% in November, greater than the.8% pace reported in November 2. Loan balances are up 1.7% during the last months. With loan balances growing faster than assets during the last year, the credit union average loan-to-asset ratio reached 69.9%, up from 67.2% in November 2. Credit union memberships rose.37% in November, up from a.23% gain reported in November 2. Memberships are up 4.6% during the past year due to robust demand for indirect auto credit, solid job growth and comparatively lower fees and loan interest rates versus banks. Credit union loan delinquency rates fell to.8% in November, down from.82% one year earlier due to a stronger economy, lower gas prices and doubledigit loan growth. Expect credit unions and banks to loosen credit standards in 218 to keep loan growth robust. ECONOMIC, COMPETITIVE AND INTEREST RATE ENVIRONMENT During November, the economy gained 8, jobs, the unemployment rate remained 4.1%, nominal personal income rose.3%, nominal personal spending rose.6%, the national savings rate fell to 2.9%, consumer prices rose.4%, consumer confidence rose, new home sales rose 17.%, existing home sales rose.6%, auto sales fell 3.3%, home prices rose 1.1% and the 1-year treasury interest rate fell 1 basis point to average 2.3%. The U.S. economy is expected to grow 2.6% in 218, faster than the 2.4% reported in 217 and faster than the long-term trend of 2%. Expect auto sale, however to slow to a 17 million annual pace in 218, from 17.3 million in 217. This should be enough to keep credit union new-auto lending growing at a double-digit pace. The unemployment rate is expected to fall below 4% in 218, and more than 1.9 million new jobs are forecast to be created. Expect credit union loan growth to exceed 1% in 218, which will be the fifth consecutive year of double-digit loan growth. Total Credit Union Lending Credit union loan balances rose.9% in November, greater than the.8% pace reported in November 2. Driving overall loan growth was strong growth in fixed rate first mortgages (1.7%), unsecured personal loans (1.6%) and credit card loans (1.4%). November seasonal factors typically subtract.22 percentage points from the underlying trend loan growth, as winter weather slows auto and home purchases. Over the last months, total credit union loan balances rose more than 1.7%, the 39 th consecutive month of greater than 1% annual loan growth. But industry growth rates mask big disparities between large and small credit unions. In the year ending in the third quarter of 217, credit unions with assets greater than $1 billion reported a.2% increase in loan balances, which was up slightly from the similar time period one year earlier. Credit unions with assets less than $2 million reported loan growth of only 3.1%, also above the pace set one year earlier (Figure 1). Figure 1: Credit Union Loan Growth (by Asset size) Year Ending 2 Q3 Year Ending 217 Q < $2 mil $2-$ $-$1 $1- $ $2- $ $-$1 bil >$1 bil

2 $ in Billions Credit Union Consumer Installment Credit (CUCIC) Credit union consumer installment credit balances (auto, credit card and other unsecured loans) rose.6% in November, faster than the.4% pace set in November 2. Consumer installment credit grew 11.1% over the last year, faster than the 1% rise in real estate loans (Figure 2). The household debt service ratio (mortgage and consumer debt payments required to remain current on that debt as a percent of disposable income) was 1.3% in the third quarter, according to the Federal Reserve, slightly above the 1.1% set in the third quarter of 2 (Figure 3). The composition of the debt service ratio has changed over the last year as the consumer debt service ratio rose to.83% in the third quarter of 217 from.67% in the third quarter of 2, while the mortgage debt service ratio fell to 4.46% from 4.1%. Figure 2: Figure 3: Percent Loan Growth Trends November 217 Total Loans Consumer Installment Credit (CUCIC) Real Estate Secured Loans 11.1% 1.7% 1.% 19% 18% 17% % 1% % 13% Household Debt Service Ratio Recession Debt Service Ratio Financial Obligations Ratio 19% 18% 17% % 1% % 13% % % Vehicle Loans Auto loans remain credit unions bread and butter loan product with vehicle loan balance growth outpacing the growth in mortgage and business loans. During the last months, vehicle loan balances increased $38.3 billion (.7% growth rate), slightly better than the $38.2 billion increase for first mortgage loans (1.8% growth rate) (Figure 4). New-auto loan balances rose a robust 1.2% in November, slightly below the 1.4% pace set in November 2, despite November being typically one of the slower months of the year for auto loan originations (Figure ). Strong consumer fundamentals are driving auto loan growth: an improving labor market, low interest rates, rising wage growth, expanding driving-age population, improving construction activity, low gas prices and better household balance sheets. Figure 4: Figure : % 1% 9% 9% % 1% Sources of Loan Growth ($ in Billions) November 2 November 217 Growth Total Loan Growth $94.1 Bln Vehicles 1st Mort. HE/2nd Mort. MBLs All Other Vehicles Year to Date November 217 Total Loan Growth $8.8 Bln st Mort HE/2nd Mort. 6.8 MBLs All Other % 1.%.8%.6%.4%.2%.% -.2% -.4% -.6% -.8% -1.% New Auto Loan Seasonal Factors.7%.6%.3%.32%.21%.2% Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec -.% -.26% -.36% -.37%-.39% -.66% Source: CUNA & NCUA. Vehicle sales were 17. million units (seasonally-adjusted annualized rate) in November, 1.1% lower than the 18.1 million pace set in November 2. We expect 2 to set a record for auto sales with more than 17. million cars and light trucks sold. Total auto sales for 217 fell to 17.3 million units from 17. million in 2, the first year-over-year decline since 29. Expect auto sales to slow to 17 million units in 218 as pent up demand fades away. 2 Credit Union Trends Report

3 Billions of Dollars Real Estate Secured Lending 1 st Mortgages and Other Real Estate Credit union fixed-rate first mortgage loan balances grew 1.7% in November, double the pace set in November 2, as existing-home sales rose.6% in November from October and are up 3.8% over the last year. Home sales are limited due to a lack of homes for sale. The supply of existing homes available for sale is becoming increasingly scarce with the inventory-to-sale ratio running at a very low 3.4 months, the lowest since January 2. This signals a very tight housing market as rising housing demand runs up against limited supply, which is putting upward pressure on home prices. The national homeownership rate trended upward in the third quarter of 217, coming in at 63.9%, above the 62.9% bottom reported in the second quarter of 2. From November 2 to November 217, fixed-rate first mortgage loan balances grew.6%, significantly above the 1.7% increase in adjustable-rate mortgage balances and higher than the 7.9% growth of home equity balances (Figure 6). Second mortgage balances have broken out of their multiyear funk by growing 4.3% during the last twelve months. The contract interest rate on a 3-year, fixed-rate conventional home mortgage rose to 3.92% in November, from 3.9% in October, and above the 3.77% reported in November 21. With the Federal Reserve expected to raise short-term interest rates 1 basis points in 218, along with the running down of their holdings of Treasury securities, expect the 3- year mortgage interest rate to move one percentage point higher during 218. Home prices rose 1.% in November from October, according to the Core Logic Home Price Index, and 7.% year-overyear. The Federal Housing Finance Agency purchase-only house price index rose 6.6% year-over-year in November due to rising housing demand running up against a tight inventory of available properties. National house price appreciation should grow 4-% over the next couple of years due to the tightening labor market pushing up wage growth, rising interest rates pushing hesitant potential homebuyers off of the fence and millennials moving out of their parents basements and forming new households. Figure 6: Figure 7: Percent Growth CU Real Estate Loans All Real Estate Loans Fixed Rate 1 st Mortgages 217 = November Adjustable Rate 1 st Mortgages Home Equity Loans Second Mortgages 4.3 $1 $9 $8 $7 $6 $ $4 $3 $2 $1 $ -$1 -$2 $8. Credit Union Liquidity Flows -$1.7 $6.1 From 1 month ago $94.1 $73.2 $. $. -$.2 -$.3 From 1 year ago $1. Loans Investments Savings borrowings Capital Surplus Funds (Cash + Investments) Credit union surplus funds fell $1.7 billion, or -.%, in November to help fund strong loan demand ($8. billion). Deposit inflows ($6.1 billion) and additional borrowings ($. billion) were used to fund the remaining loan growth (Figure 7). Credit union surplus funds as a percent of assets fell to 26% in November, down from 28.8% in November 2, as credit union assets rose 6.4% and surplus funds fell 3.8%. The obverse of the falling surplus funds ratio is the rising loan-toasset ratio, which reached 69.9% in November, the highest level since September 28. According to third quarter NCUA call report data, average annualized loan yields fell to 4.3% a record low during the first nine months of 217, down from 4.8% for the similar period in 2, as old higher-rate loans re-priced into today s lower interest rates. Credit union yield-on-asset ratios rose 1 basis points to 3.49% during the first nine months of 217 due to rising loan-to-asset ratios the mix effect and slightly higher interest rates, the rate effect. Credit union costs of funds rose 3 basis points during the last year, coming in at.4% in the first nine months of 217. Net interest margins therefore rose 7 basis points to 2.9% in 217, the fourth consecutive year of rising margins after hitting a record low of 2.77% in Credit Union Trends Report

4 Basis Points Savings and Assets Credit union savings balances rose.% in November, better than the.2% gain reported in November 2. Savings balances typically decline.2% in November due to recurring seasonal factors. Savings balances are currently growing at a 7.1% seasonally-adjusted annualized growth rate due to strong membership growth and rising household incomes (Figure 8). Credit unions reported a savings inflow of $73.2 billion during the last months, a 6.7% increase. Almost 46% percent of this inflow ($33.7 billion) was deposited into low-cost regular share accounts (Figure 9). Share certificate account growth made-up almost 2.1% of the total growth over the last year as credit unions began raising interest rates to attract and lockdown longer-term deposits. Figure 8: Figure 9: CU Savings Growth Seasonally Adjusted Annualized Growth Rate 18% 17% % 1% % 13% % 11% 1% 9% 8% 7% 6% % 4% 3% 2% 1% % % 17% % 1% % 13% % 11% 1% 9% 8% 7% 6% % 4% 3% 2% 1% % Percent 8 Capital and Other Key Measures The loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) rose to.8% in November from the March low of.68%, demonstrating its seasonal pattern (Figure 1). Delinquency rates typically reach their nadir in the first quarter as members use their tax refunds and bonus checks to catch-up on any late loan payments. As the year progresses, delinquency rates slowly rise and reach their apex late in the fourth quarter. On a year-over-year basis, the loan delinquency rate is 2 basis points lower than the.82% reported in November 2. Expect loan quality to improve slightly in 218 as the unemployment rate falls below 4.% by the end of the year and loan growth exceeds 1%. Credit union return-on-asset ratios came in at.7% (annualized) for the first nine months of 2, similar to the rate set during the previous 3 years (Figure 11). Expect credit union return-on-asset ratios to rise in 218 to 8 basis points as net interest margins increase and credit unions receive a share insurance fund dividend from the Corporate Credit Union Stabilization Fund repayment in the second quarter of Sources of Savings Growth 18. Share Drafts Regular Shares Annual.6.9 YTD Nov MMAs CDs IRAs -.6 Figure 1: Figure 11: 11 Recession CU Delinquency Rate Versus Unemployment Rate 2.2 Net Income (Percent of Average Assets) Unemployment (Left Axis) Loan Delinquency Rate (Right Axis).7% Natural Delinquency Rate (Right Axis) 4.7% Full Employment Target (Left Axis) Credit Union Trends Report

5 Credit Unions and Members As of November 217, CUNA estimates,86 credit unions were in operation, down 248 from November 2 (Figure ). Year-to-date the number of credit unions fell by 2, slightly higher than the 182 reported in the first eleven months of 2. The annual contraction rate of the credit union industry reached 4.1% in 217, faster than the 3.% average pace set over the last 2 years. NCUA s Insurance Report of Activity showed 2 mergers were approved in November with an average asset size of $2 million. This is up from the 18 mergers reported in November 2 with an average asset size of $23.7 million. Starting in 26, 46% of the annual decline in the number of credit unions took place in the first half of the year and 4% in the second half (Figure 13). Slightly more mergers in the second half may be attributable to the timing of the fall strategic planning session and credit unions attempting to close merger deals before the end of the year. Figure : Figure 13: Comparison of Declines in # of CUs November 217 Actual =,86 Annual Net Decline in Number of CUs Number of CUs 4 Annual Declines November to November # of CUs JAN - JUN JUL - DEC % s = JAN - JUN Share of Annual Change % 47% 47% 47% 49% 46% 47% 1% 44% 42% 46% YTD November Declines Annual Declines Credit union memberships grew 417, in November, or.37%, which is much better than the 21, new members, or.23%, added in November 2. Year-to-date credit unions added 4.22 million new members, faster than the million members added during a similar period in 2. During the last months, credit unions memberships rose 4.6%, the fastest pace in more than 2 years (Figure ). Total credit union memberships reached 113. million in November, 4.84 million more than November 2 (Figure 1). Rapid U.S. job growth and strong indirect auto loan demand are two major factors driving the surge in credit union memberships. The U.S. economy added 8, jobs in November and 2.2 million jobs during the last months, according to the Bureau of Labor Statistics. For 218, expect another 1.9 million new jobs will be created and credit union membership growth to be at 3.%, slightly below the 4.4% pace in 217. Figure : Figure 1: Credit Union Membership Growth (Annual Percent Growth) Millions of Members Total CU Membership November 217 Actual = 113. Million Year-End 217 Forecast Nov. Credit Union Trends Report

6 National Monthly Credit Union Aggregates CAPITAL/ ($ Billions) (Millions) CREDIT LOAN / ASSET YR/MO LOANS ASSETS SAVINGS CAPITAL MEMBERS UNIONS SAVINGS RATIO , , , , , , , , , ,22.6 1, , , , , , , , , , , , , , , , , ,291. 1, , ,31.8 1, , ,37.9 1, , , , , , , , , , , , , , , , , ,37.2 1, , , , , , , , ,372. 1, , , , , ,388. 1, , , , , , , , Credit Union Growth Rates Percent Change Previous Year # OF CUs Delinquency YR/MO LOANS ASSETS SAVINGS CAPITAL MEMBERS # OF CUs DECLINE Ratio* (3.9) (26).82% (4.2) (277).89% (4.1) (267).8% (3.7) (241).764% (3.9) (22).76% (4.6) (297).728% (4.4) (284).728% (4.2) (271).74% (3.7) (23).774% (4.) (27).774% (3.9) (247).769% (3.1) (192).797% (3.) (221).822% (3.4) (2).827% (3.6) (224).82% (3.6) (222).7% (3.6) (222).684% (3.4) (178).739% (2.9) (18).74% (3.) (184).74% (3.4) (27).7% (3.4) (27).77% (3.4) (29).784% (4.2) (27).783% (4.1) (248).79% * Loans two or more months delinquent as a percent of total loans. 6 Credit Union Trends Report

7 Distribution of Credit Union Loans Estimated $ (Billions) Outstanding 1 ST TOT. OTHR TOTAL TOTAL NEW USED TOTAL UNSEC CREDIT MORT MORT REAL YR/MO LOANS VEHICLE LOANS Ex. CC S CARDS CUCIC TOTAL 2 ND +HE ESTATE MBLs* * Member Business Loans CUCIC = Total Loans Total Real Estate - MBLs CUCIC = Total Vehicle Loans + Unsecured Loans + Credit Card 17% of MBLs Distribution of Credit Union Loans Percent Change From Prior Year 1 ST TOT. OTHR TOTAL TOTAL NEW USED TOTAL UNSEC CREDIT MORT MORT REAL YR/MO LOANS VEHICLE LOANS Ex. CC S CARDS CUCIC TOTAL 2 ND +HE ESTATE MBLs* Credit Union Trends Report

8 Percent Annual Growth Rates Total Loans & Installment Credit CUCIC Total Loans $ in Billions CU Loan Portfolio $728.9 $84.9 $66.1 $8.3 $87. $44.1 $8. $87.4 $61.1 $ % $ % 61.% 8.% 1.8% 4.1% 6.7% 9.3% 9.6% 6.3% 9.8% $889. $ % 6.7% Nov CIC Other Percent CIC Share of Total Loans at Credit Unions $ Billions Consumer Installment Credit at Credit Unions This report on key CU indicators is based on data from CUNA E&S s Monthly Credit Union Estimates, the Federal Reserve Board and CUNA Mutual Group Economics. To access this report on the Internet, visit If you have any questions, comments, or need additional information, please call. Thank you. Steven Rick , Ext steve.rick@cunamutual.com CUNA Mutual Group Economics CUNA Mutual Group, 217 All Rights Reserved. CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. 8 Credit Union Trends Report