The Economy and Credit Unions

Transcription

1 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

2 Agenda The economic outlook through 217 Credit union finance issues

3 Economic Summary Beginning eighth year of recovery. Job market improving, but still some slack. Inflation outlook moderate. Interest rates poised to start rising. External risks overstated, not life threatening.

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

5 Household Finances Recovered: Debt payments low Stock market recovered, but touchy Home prices rising Jobs and incomes 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

6 14% 12% Household Debt Outstanding To Annual Disposable Income Latest: 215 Q4 123% 1% % 96% 6% 4% 2% % Mortgage Consumer

7 Percent Household Debt Service Ratio Monthly Payments to Disposable Income Latest: 215 Q4 1 Mortgage Consumer

8 US Home vs.stock Prices Case-Schiller National Index, S&P Wealth Effects! Case Schiller S&P 5

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

10 Annual Light Vehicle Sales Millions

11 Annual Light Vehicle Sales Millions Missed Sales

12 Unemployment Rates and Recessions Percent of the Labor Force Broadest Measure 9.7% Down from 17.4%, Oct 29 Narrow Measure 4.9% Down from 1.1%

13 Non-Farm Payrolls Monthly Changes SA, to May million jobs lost million jobs gained Net Gain: 5.9 million

14

15 Consumer Confidence? 12 Conference Board

16 F Consumer Price Inflation 197 to Present, Annual Rates Months to June Top Line = 1.1% Core = 2.2%

17 Interest Rate Outlook

18 12 1 Interest Rates 19 to Present Fed Funds 1-yr Treas

19 Watching the Fed Inflation approaching target. But we exist in international financial markets. How many Fed Funds rate moves this year:, 2, 4? Longer-term rates. Liquidity vs. NEV or Net Interest Income

20 Interest Rates and Mortgage Refis 1 19 to Present yr Treas

21 Interest Rates and Mortgage Refis 1 19 to Present yr Treas ?

22 Real 1 Year Treasury Yield Current Yield Minus Trailing One Year Core CPI 1.. Long Term Avg: 2.5%

23 Treasury Yield Curves mth 1 Yr 3 Yrs 5 Yrs 7 Yrs 9 Yrs 1 Yrs April 213 April 214 April 215 April 216

24 Credit Union Outlook Through 217 Moderate savings and asset growth Low interest rates Rising short rates? Consumer spending growth Strong loan growth More jobs, spending Still backlogs Loan delinquencies and losses back to normal Mixed outlook for net income See below Stable/rising net worth ratios

25 3 Credit Union Loan Growth Annual Percent Change Months to May F -1

26 2.5 Credit Union Delinquency Dollars Delinquent as Percent of Total Portfolio /16 16F

27 I 16F 17F 1.4 Net Loan Charge-ffs Total Portfolio

28 25 Credit Union Savings Growth Annualized Percent Change

29 16 Credit Union Net Income To Average Assets

30 12 Net Capital to Assets F U.S. PCA Well Cap'd PCA Adequate

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 2.2% 2.% Loan Loss Provisions Allowance for Loan Losses Credit Union Credit Quality (As a % of Loans) 2.2% 2.% 1.% 1.6% 1.4% 1.2% 1.%.%.6%.4%.2%.% Net Charge-offs 4:1 5:1 6:1 7:1 :1 9:1 1:1 11:1 12:1 13:1 14:1 15:1 16:1 1.% 1.6% 1.4% 1.2% 1.%.%.6%.4%.2%.% Source: NCUA 32

33 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

34 Future of Stabilization Fund? Total: 6 bp over 5 years?

35 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

36 Credit Union Net Interest Income

37 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

38 Mortgage Refinancing yr Treas

39 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

40 Performance Varies by Size ROA Mbr Growth Since LT $5 $5 - $2 $2 - $5 $5 - $1B GR $1 B 4

41 IS THE NEW 1? (basis points, that is) To maintain a net worth ratio of 11%: With 1% asset growth, takes ~1 bp of ROA With % asset growth, takes ~ bp of ROA To grow by 6% a year after inflation: With 4% inflation, takes 1 % of top line growth With 2% inflation, takes % of topline growth If 1 bp works at 4% inflation, bp works at 2% inflation