CREDIT UNION TRENDS REPORT

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CREDIT UNION TRENDS REPORT CUNA Mutual Group Economics May 21 (March 21 Data) Highlights During March, credit unions picked-up 423, in new memberships, and loan and savings balances grew at a.

1 CREDIT UNION TRENDS REPORT CUNA Mutual Group Economics May 21 (March 21 Data) Highlights During March, credit unions picked-up 423, in new memberships, and loan and savings balances grew at a.5% and 5.7% seasonally-adjusted annualized pace, respectively. Firms hired 135, workers, nominal consumer spending rose.4% and long-term interest rates decreased 2 basis points. Real GDP growth was 2.3% in the first quarter due to a surge in business investment spending and strong consumer spending. At the end of March, CUNA s monthly estimates reported 5,727 credit unions in operation, 3 fewer than one month earlier. Year-over-year, the number of credit unions declined by 24, more than the 222 lost in the months ending in March 217. Total credit union assets rose 2.2% in March, faster than the 1.4% gain reported in March of 217. Assets rose 7.1% during the past year due to a 5.% increase in deposits, 3% increase in borrowings and 7% increase in capital. The nation s credit unions increased their loan portfolios by 1.1% in March, faster than the.% pace reported in March 217. Loan balances are up.% during the last months. With loan balances growing faster than savings, credit union liquidity is tightening as the credit union average loan-to-savings ratio reached 1.5%, up from 7.% in March 217. Credit union memberships rose.37% in March, down from the.45% gain reported in March 217. Memberships are up 4.% during the past year due to robust demand for credit, solid job growth and credit unions having comparatively lower fees and loan interest rates. Credit union loan delinquency rates rose to.4% in March, above the.75% natural long-run rate, from.% in March 217. The loan delinquency rate hits its nadir in March due to tax refunds and bonuses allowing some members to catch up on late loan payments. ECONOMIC, COMPETITIVE AND INTEREST RATE ENVIRONMENT During March, the economy added 135, jobs, the unemployment rate remained at 4.1%, personal income rose.3%, personal spending rose.4%, consumer prices rose.2%, consumer confidence fell, new home sales rose 2%, existing home sales rose 1%, auto sales rose 2.3%, home prices rose 1.4% and the -year Treasury interest rate decreased 2 basis points to average at 2.4%. The economy expanded at a 2.3% annualized rate in the first quarter of 21, above the long-run natural rate of 2%, due to widespread growth in investment, consumer spending, exports and government spending. Real final sales to private domestic purchases (GDP-less inventories, exports and government spending) rose only 1.7% this is a better measure of the underlying growth rate of the U.S. economy than GDP. Expect the economy to grow 2.% in 21 and 2.3% in 21. The economy has surpassed its potential rate of output, so the Federal Reserve will raise the Fed Funds interest rate basis points in 21 and 75 basis points in 21. Total Credit Union Lending Credit union loan balances rose 1.1% in March, faster than the.% pace reported in March 217, and.% during the last months. March is historically the third weakest loan growth month of the year, with seasonal factors typically shaving.24 percentage points from the underlying trend growth rate. The lending season is now in full swing, with strong loan growth expected from April through September. Credit union loan balances rose over the $1 trillion milestone in March, doubling the $5 billion set back in August 2. Credit union seasonally-adjusted annualized loan growth reached.5% in March, the fastest pace since the first quarter of 2 when the stock market boom was reaching its apex and the accompanying wealth effect encouraged borrowing (Figure 1). The stock market boom soon turned to a bust by the third quarter of 2, causing consumers to pull back and credit union lending to decline as well. This time around, the credit boom is being driven by strong job growth and rising household formations.. Figure 1: CU Loan Growth Seasonally Adjusted Annualized Growth Rate % 13% % % % % % 7% % 5% 4% 3% 2% 1% % -1% % % 13% % % % % % 7% % 5% 4% 3% 2% 1% % -1% -2%

2 Credit Union Consumer Installment Credit (CUCIC) Credit union consumer installment credit balances (auto, credit card and other unsecured loans) rose 1.4% in March, better than the -.2% pace set in March 217, due to strong auto lending and banks tightening their credit standards. Credit card balances fell.5% in March due to seasonal factors that typically shave 1.24 percentage points from the underlying trend growth as members use tax refunds and bonuses to pay down outstanding credit card balances (Figure 2). Credit union consumer installment credit grew.% during the last year, which is better than the 4.2% for the total market excluding credit unions (Figure 3). Figure 2: Figure 3: 5.% 4.% 3.% 2.% 1.%.% -1.% -2.% -3.% Credit Card Loan Seasonal Factors -1.3% -2.32% -1.24%.3%.5%.%.3%.27%.74% 3.% Jan Feb Mar Apr May June July Aug Sept -.47% -.21% Oct Nov Dec Growth in Consumer Installment Credit Percent CUs.% 17 Total Market Excluding CUs 4.2% Total Market Excluding CUs & GSLs 3.% Source: CUNA & NCUA. Vehicle Loans Credit union used-auto loan balances grew 1.% in March, above the 1.3% reported in March 217. March s used-auto loan seasonal factors usually add.1 percentage points to the underlying trend growth rate (Figure 4). The used auto buying and lending season begins in March and runs through August. On a seasonally-adjusted annualized growth rate basis, used-auto loan balances rose.3% in March the fastest pace since 1. The last time used-auto loan balances grew this fast was during the dotcom stock market boom of 1. Improving consumer fundamentals are driving strong auto loan growth: an improving labor market, low oil prices, faster wage growth, low interest rates, an expanding drivingage population, improving construction activity and better household balance sheets. Figure 4: Figure 5: Used Auto Loan Seasonal Factors 1.%.%.%.7%.7%.%.5%.4%.31%.3%.35%.3%.2%.1%.1%.%.% -.1% Jan Feb Mar Apr May June July Aug -.3% Sept Oct Nov Dec -.2% -.13% -.3% -.4% -.34% -.5% -.42%-.42% -.% -.7% -.% -.% -.% -1.% Source: CUNA & NCUA. Source data: CUNA Economics & Statistics and CUNA Mutual Group - Economics U.S. Vehicles Sales Seasonally Adjusted Annual Rate Millions of Units Recession New Auto Sales Inherent Demand Auto Sales Forecast Source: Autodata Corp. Vehicle sales in March rose to a 17.5 million seasonally-adjusted annualized sales rate, up from a 17.1 million sales pace in February and above the 17.1 million set in March 217, due to one additional selling day compared to one year earlier. Expect sales to slow to 17 million for the rest of the year, but still above the.5 million units consistent with inherent auto demand, due to rising interest rates and tightening access to credit attributable to weakening credit conditions in subprime groups. 2 Credit Union Trends Report

3 Real Estate Secured Lending First Mortgages and Other Real Estate Credit union fixed-rate first mortgage loan balances jumped 1.3% in March, slower than the 2.5% increase reported in March 217. This slower March mortgage volume was due to a drop in loan applications during January and February when mortgage interest rates rose 3 basis points. During the last months, fixed-rate first mortgage balances rose.2%, faster than the.% increase in adjustable-rate mortgage balances. Improving household balance sheets, rising consumer incomes and a rising capacity to service debt has decreased mortgage credit risk and therefore encouraged credit union lenders to loosen lending standards. The contract interest rate on a 3-year fixed-rate conventional home mortgage rose to 4.47% in March, up from 4.44% in February and higher than the 4.2% reported in March 217. The 3 basis point increase in mortgage interest rates in March coincided with a 2 basis point decrease in the -year Treasury interest rate, which fell to 2.4%. The 2 basis point decrease in long-term interest rates was caused by a 1 basis point decrease in real interest rates (due to investors rotating out of stocks and into bonds) and a 1 basis point decrease in expected inflation. According to the Core Logic Home Price Index, single family home prices rose 1.4% in March from February, the fastest pace in 5 years. During the last months home prices rose 7%. Supply-side constraints continue to be the most significant driver of higher home prices; during March there was only 3. months supply of existing homes on the market at the current sales rate. Improving economic fundamentals bode well for home sales and house price appreciation. Wage growth will help first-time buyers accumulate sufficient savings for down payments. This will increase the demand for housing, boosting home sales and house prices. Home equity loan balances fell.5% in March as members used bonuses and tax refunds to pay down some of their lines of credit. Because of these seasonal factors, March is typically the weakest month of the year for home equity loan growth, with balances falling 1.34 percentage points below the underlying trend growth rate (Figure ). However, credit union home equity loan balances grew at a.3% seasonally-adjusted annualized growth rate in March, due to rising home prices, the strong job market, rising consumer confidence and consumers releasing pent-up demand for durable goods. Figure : Figure 7: 1.%.%.%.7%.%.5%.4%.3%.2%.1%.% -.1% -.2% -.3% -.4% -.5% -.% -.7% -.% -.% -1.% -1.1% -1.2% -1.3% -1.4% -1.5% Home Equity Loan Seasonal Factors Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec -.13% -.21% -.21% -.2%-.2% Source: CUNA & NCUA %.52%.1%.3%.55%.4%.57% 75% 73% 7% % 5% 3% % 5% CU Surplus Funds (Cash + Investments) 55% Recession 24% 53% Surplus Funds-to-Assets (Right Axis) 22% Loan-to-Asset (Left Axis) 5% 2% % 3% 3% 34% 32% 3% 2% 2% Surplus Funds (Cash + Investments) Credit union surplus funds as a percent of assets fell to 27.5% in March (Figure 7) from 2.7% last year, as credit unions partly funded new loan growth with cash and investments. During March, a 2.5% surge in savings balances funded a 1.1% increase in loans, a 5.4% increase in surplus funds and a 5.72% reduction in external borrowings. Surplus funds are expected to fall to 2% of assets by this time next year, the tightest liquidity position since the fourth quarter of 27, as loan balances grow % and savings balances rise only 7%. Loans as a percent of assets are expected to rise from.5% today to 7.5% by March 21 (Figure 7). Since the average return on loans is approximately 4.% today, and the average return on investments is 1.%, the 2 percentage point shift in assets from surplus funds to loans will boost asset yields by basis points [( ) x.2]. During March, 3-year Treasury notes had yields only 1 basis points above the Fed Funds interest rate (2.42% versus 1.51%) slightly more than the basis point difference reported during March 217. The percentage of credit union surplus funds with a maturity greater than 1 year fell to 4% in March from 5% last year. 3 Credit Union Trends Report

4 Savings and Assets Credit union savings balances surged 2.5% in March, the same 2.5% gain reported in March 217, due to March ending on a payroll Friday and the seasonal factors of tax refunds and bonuses being deposited in credit union members share draft and regular share accounts, which increased.4% and 3.1%, respectively. March s seasonal factors typically add 1. percentage points to the underlying savings trend growth, making it the second biggest month of the year for credit union savings growth (Figure ). Credit union savings balances grew only 5.7% at a seasonally-adjusted annualized growth rate in March, due to a falling national savings rate (savings as a percent of disposable personal income) and consumers more willing to spend rather than save (Figure ). The savings-per-member growth rate fell to 1.7% during the last year, down from 4% in March 217. We forecast credit union savings balances to grow.% in 21. Figure : Figure : 1.% 1.4% 1.2% 1.%.%.%.4% CU Savings Seasonal Factors 1.45% 1.%.2%.1%.% Jan Feb Mar Apr May June July Aug Sept -.2% Oct Nov Dec -.2% -.2% -.22% -.% -.4% -.37% -.37% -.32% -.% -.4% -.4% -.% Source: CUNA & NCUA. CU Savings Growth Seasonally Adjusted Annualized Growth Rate 1% 17% % % % 13% % % % % % 7% % 5% 4% 3% 2% 1% % Capital and Other Key Measures The credit union average capital-to asset ratio fell to.4% in March 21, down from.7% at the end of 217 but the same as was reported one year earlier. In the year ending in March, credit union capital rose 7.1% while assets grew 7.1%, which maintained the capital ratio at.7%. During the first quarter credit unions reported strong asset growth due to March ending on a payroll Friday and many members see higher after tax income and bonuses. Capital ratios should climb to.% by the end of 21, as the capital growth rate exceeds asset growth rate this year (Figure ). The credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) fell to.4% in March, down from.% in December 217, but up from.% in March 217 (Figure ). Credit unions reported large declines in the delinquency rate in February and March as members used bonuses and tax refunds to catch up on overdue loans. The labor market is very tight, with the April unemployment rate of 3.% falling below the 4.7% considered to be full employment. With the unemployment rate expect to fall to 3.% by 21, this heralds continued strong loan performance over the next 7 quarters. 1% 17% % % % 13% % % % % % 7% % 5% 4% 3% 2% 1% % Figure : Net Capital-To-Asset Ratios Figure : CU Delinquency Rate Versus Unemployment Rate Recession Unemployment (Left Axis) Loan Delinquency Rate (Right Axis).75% Natural Delinquency Rate (Right Axis) 4.7% Full Employment Target (Left Axis) Credit Union Trends Report

5 Credit Unions and Members As of March 21, CUNA estimates 5,727 credit unions were in operation, 3 fewer than February. During the last months, the number of credit unions fell by 24, slightly above the 222 annual decline set one year ago. During the first quarter of 21, the number of credit unions fell by 73, the fastest pace since the first quarter of 2 (Figure ). Greater regulatory compliance burdens from the Consumer Financial Protection Bureau (CFPB) will put additional downward pressure on CU non-interest fee income and will therefore accelerate the number of mergers over the next few years. At the end of 217, 2 credit unions reported assets greater than $1 billion more than the year before (Figure 13). These large credit unions control more than 5% of all credit union loans, but make up less than 5.1% of all credit unions. The number of credit unions with assets less than $2 million fell by 177 to reach 2,32, as these credit unions either grew into the larger asset class or merged with a larger credit union. Figure : Figure 13: Annual Net Decline in Number of CUs JAN - JUN JUL - DEC # of CUs 5 % s = JAN - JUN Share of Annual Change 3, 2,5 2,47 2,32 Number of CUs (by Asset size) 2 Q4 217 Q % 47% 47% 47% 4% 4% 47% 51% 44% 42% 51% , 1,5 1, 5 1,1,2 Number of CUs March 21 = 5, urce data: CUNA Economics & Statistics and CUNA Mutual Group - Economics < $2 mil $2-$5 $5-$ $- $25 $25- $5 $5-$1 bil >$1 bil Credit union memberships grew at a record pace in the first quarter of 217, adding 1.3 million new memberships, significantly better than the 1.1 million added in the first quarter of 217. On a growth rate basis, memberships are up 4.1% in the year ending in March 21, the same pace set in the year ending in March 217 (Figure ). The memberships gain was partially driven by the 35, new jobs created in the first quarter, according to the Bureau of Labor Statistics, which is better than the 532, jobs added in the first quarter of 217. Figure : Figure : Percent Annual Membership Growth Percent Credit Union Membership Growth (by Asset size) Year Ending 2 Q4 Year Ending 217 Q Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 217 urce data: CUNA Economics & Statistics and CUNA Mutual Group - Economics < $2 mil $2-$ $5-$ $- $ $25- $5 $5-$1 bil >$1 bil Members are also joining credit unions in droves to get auto loans and other forms of credit. Credit unions should expect membership growth to exceed 3.5% in 21 and 2.5% in 21. Most of the membership growth is taking place at credit unions with assets greater than $5 million (Figure ) due to organic growth and mergers. Credit unions with less than $5 million in assets lost memberships during the last 2 years. 5 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 ,24. 1, , ,27. 1, , , , , ,27. 1, , ,2.3 1, , ,21.5 1, , ,31. 1, , ,37. 1,.4.2., ,3. 1, , , , , ,323. 1,7...4, ,344. 1, , ,33. 1, , ,37.2 1, , ,3.4 1, , ,37.4 1, , ,372. 1, , ,374. 1, , ,3.5 1, , ,3.2 1, , ,3.2 1, , ,44. 1, , ,47. 1, , ,42. 1, , ,1.5 1,45. 1, , Credit Union Growth Rates Percent Change Previous Year # OF CUs Delinquency YR/MO LOANS ASSETS SAVINGS CAPITAL MEMBERS # OF CUs DECLINE Ratio* (3.) (252).7% (4.) (27).72% (4.4) (24).72% (4.2) (271).745% (3.7) (235).774% (4.) (257).774% (3.) (247).7% (3.1) (12).77% (3.5) (221).22% (3.4) (2).27% (3.) (224).25% (3.) (222).75% (3.) (222).4% (3.4) (17).73% (2.) (1).74% (3.) ().745% (3.4) (27).755% (3.4) (27).77% (3.4) (2).74% (4.2) (257).% (4.1) (24).54% (3.7) (222).1% (4.1) (24).2% (4.) (24).54% (.3) (377).43% * Loans two or more months delinquent as a percent of total loans. 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 $ $5.1 $ % 5.7% 5.3% CU Loan Portfolio $.5 $4. $72. $.1 5.% 5.% $.1 $5.5 $57.4 $5.3 $ % 57.5% 5.5% 5.% 1.% 1.5%.3% 5.% Mar 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: Sign in at cunamutual.com Go to the Resource Library tab Under Publications heading, select Credit Union Trends Report 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. Credit Union Trends Report

CREDIT UNION TRENDS REPORT

CREDIT UNION TRENDS REPORT CUNA Mutual Group Economics December (October Data) Highlights During October, credit unions picked-up, in new memberships, loan balances grew at a.% seasonallyadjusted annualized