Today s Economy & Credit Unions

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Homer McGee
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1 Today s Economy & Credit Unions CUNA Community CU Conference The Federation Annual Conference September 23, 215 Bill Hampel, Chief Policy Officer Credit Union National Association bhampel@cuna.coop

2 Economic Summary Beginning the seventh year of recovery. Job market improving, but still some slack. Inflation outlook moderate. Economy now in a sustained recovery: escape velocity. External risks not life threatening.

3 Gross Domestic Product Quarterly Changes at Annual Rates, Real Recession Great Recession Of 2-29

4 Household Finances Recovered: Debt payments low Stock market recovered Home prices rising But still room for further improvement: Debt outstanding still relatively high Home prices still off peak Improved ability to spend, willingness hasn t yet caught up Demand backlogs

5 Household Debt Outstanding 14% To Annual Disposable Income 12% 1% Latest: 215 QI 123% % 96% 6% 4% 2% % Mortgage Consumer

6 Percent Household Debt Service Ratio Monthly Payments to Disposable Income Latest: 215 QI 1 Mortgage Consumer

7 US Home vs. Stock Prices Case-Schiller National Index, S&P Case Schiller S&P 5

8 Household Net Worth $9, $, $7, $6, $5, $4, $3, $2, $1, $

1976 197 19 192 194 196 19 199 1992 1994 1996 199 2 22 24 26 2 21 212 213 215 2. 1. 16. 14.

9 Annual Light Vehicle Sales Millions Sales $19 million below trend: to 12

10 Non-Farm Payrolls Monthly Changes SA, to August million jobs lost million jobs gained Net Gain: 3.7 million

11 Job Loss and Recovery: Four Recessions Since 19 Scaled to 2 Employment of 13 million Great Recession Job Losses in Recession.7 million Job Gains First Five Years 11.1 million Net Change Five Yrs into Recovery PLUS 2.4 million

12 Job Loss and Recovery: Four Recessions Since 19 Scaled to 2 Employment of 13 million Great Recession Average of Three Previous Recessions Job Losses in Recession.7 million 3. million Job Gains First Five Years 11.1 million 14. million Net Change Five Yrs into Recovery PLUS 2.4 million PLUS 11 million

13 Job Loss and Recovery: Four Recessions Since 19 Scaled to 2 Employment of 13 million Great Recession Average of Three Previous Recessions Difference Job Losses in Recession.7 million 3. million 5.7 million Job Gains First Five Years 11.1 million 14. million -2.9 million Net Change Five Yrs into Recovery PLUS 2.4 million PLUS 11 million BEHIND.6 million

15 Unemployment Rates and Recessions Percent of the Labor Force Recessions Top Line Rate U6 Rate Broadest Measure 1.3% Down from 17.4%, Oct 29 Narrow Measure 5.1% Down from 1.1%

16 Consumer Confidence? 12 Conference Board

7 72 74 76 7 2 4 6 9 92 94 96 9 2 4 6 12 14 16F Consumer Price Inflation 197 to

17 F Consumer Price Inflation 197 to Present, Annual Rates Months to August Top Line =.2% Core = 1.% 4 2-2

18 Interest Rate Outlook

19 12 1 Interest Rates 19 to Present Fed Funds 1-yr Treas

20 Waiting on the Fed The Fed has lost its patience. But we exist in international financial markets. Fed Funds Rate Move: October, December? Speed and frequency Longer-term rates. Liquidity vs. NEV or Net Interest Income

1 9 7 Interest Rates 19 to Present 1-yr Treas 6 5 4 3 2 1 9

21 1 9 7 Interest Rates 19 to Present 1-yr Treas

22 Treasury Yield Curves mth 1 Yr 3 Yrs 5 Yrs 7 Yrs 9 Yrs 1 Yrs April 213 April 214 Aug 215

23 Credit Union Outlook Through 215 Weak savings and asset growth Low interest rates Consumer spending growth Strengthening loan growth Household de-leveraging slowing Improving confidence, building backlogs Loan delinquencies and losses about back to normal Mixed outlook for net income See below Rising net worth ratios

24 16 Credit Union Net Income To Average Assets F

25 12 Net Capital to Assets F U.S. PCA Well Cap'd PCA Adequate

26 What s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

27 2.2% 2.% 1.% 1.6% 1.4% 1.2% 1.%.%.6%.4%.2%.% Loan Loss Provisions Allowance for Loan Losses Net Charge-offs Credit Union Credit Quality (As a % of Loans) 4:1 5:1 6:1 7:1 :1 9:1 1:1 11:1 12:1 13:1 14:1 2.2% 2.% 1.% 1.6% 1.4% 1.2% 1.%.%.6%.4%.2%.% Source: NCUA 27

28 What s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

29 Corporate Stabilization Assessments Basis Points of Insured Shares

Corporate Stabilization Assessments Basis Points of Insured Shares 3

30 Corporate Stabilization Assessments Basis Points of Insured Shares ?

31 What s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

32 Basis Points 425 Net Interest Margin vs. Operating Expense to Average Assets NIM Operating Expense

33 I Credit Union Net Interest Income

34 What s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

35 Mortgage Refinancing yr Treas

36 What s Driving Earnings? POSITIVES: Lower provision expenses Finished stabilization assessments NEGATIVE, for a while longer: Net Interest Income EVAPORATING Mortgage refinance revenue AT LONG-TERM RISK Debit interchange revenue Overdraft revenue

The Economy and Credit Unions

The Economy and Credit Unions CUNA National Credit Union Roundtable for Board Leadership August 7, 216 Bill Hampel, Chief Policy Officer Credit Union National Association bhampel@cuna.coop Agenda The economic