CUNA Economic and Credit Union Forecast April 2018

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1 CUNA Economic and Credit Union Forecast April 2018 For Additional Information Contact: Jordan van Rijn Senior Economist Credit Union National Association Telephone:

2 CUNA Economic and CU Forecast April 2018 Change Highlights We have growing concerns over calls for trade tariffs and the increasing possibility of trade war. Objections from Congressional leadership and business interests as well as recent significant equity market swings reflect the fact that others share those concerns. In the end, we believe tariffs will be limited and largely symbolic and that the policy ultimately adopted will exclude a number of key trading partners. Against this backdrop, the most significant changes to CUNA s economic & credit union forecast are fairly modest: We increased our forecast for economic growth in 2018 from 2.60% to 2.75% with the stimulative effect of tax cuts overwhelming a modest trade-related drag. We expect growth to slow to 2.5% in 2019 as higher market interest rates put more obvious pressure on borrowing and spending. Our forecast for the Federal Funds Rate now includes three 25-basis-point rate hikes in 2018 as opposed to four, bringing the rate to 2.15% at the end of 2018 a bit lower than our 2.40% previous forecast. Our forecast for 2018 credit union loan growth was revised down from 10.0% to 9.0%. We expect loan growth of 8.0% in This, in part, also is reflect in membership growth which we revised down from3.8% to 3.5% in and to 2.5% in We expect 2018 credit union savings to grow at 7.0% rather than 6.0% in 2017 before increasing to 8.0% in 2019.

3 CUNA Economic Forecast We expect the U.S. economy to grow by 2.75% in 2018, up modestly from the previous forecast of 2.60%. Economic growth for the fourth quarter of 2017 was revised up to 2.9%, which was the third straight quarter of very strong economic growth in the neighborhood of 3.0%. With very low unemployment, high consumer confidence, and recent corporate and individual tax cuts, we expect strong growth to continue into However, increasing uncertainty around tariffs, rising interest rates, and a challenging political environment will prevent growth from continuing at its recent 3.0% pace. The unemployment rate finished 2017 at 4.1% and will fall to 3.9% in The robust economy is boosting job growth and lowering unemployment. Expect continued solid labor market performance with the unemployment rate bottoming out at 3.8% in Headline and core inflation will both increase to 2.25% in The growing economy and low unemployment will put upward pressure on wages, increasing headline and core inflation in As the FOMC continues to raise interest rates, inflation will settle in at 2.0% in The Federal Funds interest rate will increase to 2.15% in 2018, down from the previous forecast of 2.40%. With inflation near 2.0%, low unemployment and strong economic growth, we expect the FOMC to continue to gradually raise interest rates, with three 25-basispoint hikes during Our previous forecast included four rate hikes; however, with new tariffs and threats of an all-out trade war, it now appears less likely that the FOMC will raise rates at a faster pace. The 10-year Treasury rate will increase to 3.1% in Healthy economic growth, low unemployment and inflationary pressures typically foreshadow rises in the 10-year Treasury rate, since the Treasury must offer competitive rates to keep up with inflation and lure investors. We expect this trend to continue, raising the 10-year Treasury rate to 3.10% by the end of 2018, and 3.30% by the end of 2019.

4 CUNA Economic Forecast April 2018 Actual Results Quarterly Results/Forecasts Annual Forecasts 5 Yr Avg :1 2018:2 2018:3 2018: Growth rates: Economic Growth (% chg GDP)* 2.20% 2.30% 2.25% 2.90% 2.90% 2.90% 2.75% 2.50% Inflation (% chg CPI)* 1.30% 2.10% 2.00% 2.10% 2.40% 2.50% 2.25% 2.00% Core Inflation (ex. food & energy)* 1.90% 1.50% 2.00% 2.10% 2.40% 2.50% 2.25% 2.00% Unemployment Rate 5.60% 4.10% 4.10% 4.00% 4.00% 3.90% 3.90% 3.80% Federal Funds Rate (effective) 0.36% 1.33% 1.68% 1.90% 2.00% 2.15% 2.15% 2.90% 10 Year Treasury Rate 2.26% 2.40% 2.74% 2.80% 2.90% 3.10% 3.10% 3.30% 10 Year Fed Funds Spread 1.90% 1.07% 1.06% 0.90% 0.90% 0.95% 0.95% 0.40% *Percent change, annual rate. All other numbers are end of period values.

5 CUNA Credit Union Forecast Memberships ended 2017 up 4.1% for the year. We expect slightly slower membership growth of 3.5% in 2018 followed by 2.5% growth in Credit union membership growth has been on a tremendous run, averaging 3.1% annual increases over the past 5 years. The five-year average increase is over four times the 0.7% rate of U.S. population growth, indicating that credit unions have grown their market share significantly. This has been largely driven by a strong economy, lower loan rates at credit unions and big increases in indirect auto lending. As interest rates rise and pent up demand from the recession softens particularly for auto loans we expect strong membership growth to ease a bit in both 2018 and Credit union savings balances will end 2018 up 7.0%, and we expect 8.0% savings growth in Rising interest rates and continued strong membership growth will lead to increased savings growth in 2018 and 2019, as members recognize increasing returns on their deposits and shift assets accordingly. Financial market volatility also could spur flight-to-safety inflows. Credit union loan balances increased 10.0% in 2017, and we expect a slight drop to 9.0% loan growth in 2018 and 8.0% in Bolstered by a strong economy, extremely low interest rates, and pent up demand following the financial crisis, credit unions experienced incredible loan growth over the past five years, with an average increase of 9.8% per year. This will decrease slightly in 2018 and 2019, as interest rates rise, making borrowing more expensive. Credit quality will remain healthy in 2018 and 2019, with only slight increases in delinquencies and charge-offs. Delinquencies and charge-offs ended 2017 at 0.83% and 0.55%, respectively. As loan growth slows and new borrowers get deeper into their loan terms, we expect 2018 delinquencies and charge-offs to increase slightly to 0.85% and 0.60%, respectively. However, the strong economy and solid wage increases should keep loan portfolios relatively health through 2018 and We expect strong credit union earnings of 85 basis points in This will fall to 75 basis points in Credit unions experienced average earnings of 77 basis points in 2017, matching the five-year average. We expect this to increase to 85 basis points in 2018, partly due the share insurance fund dividend repayment, which should come through in the third quarter of 2018 and boost ROA by about 5 basis points for the year (or 20 basis points in the third quarter). Combined with a strong economy and growing loan portfolios, this should increase already healthy credit union earnings to 0.85% ROA in However, slower loan growth will drop ROA back to around its five-year average, and we expect 75 basis points of earnings in 2019.

CUNA Credit Union Forecast April 2018 Actual Results Quarterly Results/Forecasts Annual Forecasts 5 Yr Avg 2017 2018:1 2018:2 2018:3 2018:4 2018 2019 Growth rates: Savings growth 5.7% 6.0% 4.0% 1.

6 CUNA Credit Union Forecast April 2018 Actual Results Quarterly Results/Forecasts Annual Forecasts 5 Yr Avg :1 2018:2 2018:3 2018: Growth rates: Savings growth 5.7% 6.0% 4.0% 1.0% 1.0% 1.0% 7.0% 8.0% Loan growth 9.8% 10.0% 1.5% 2.5% 2.5% 2.5% 9.0% 8.0% Asset growth 6.2% 6.6% 3.0% 1.0% 1.0% 1.0% 6.0% 6.0% Membership growth 3.5% 4.1% 0.5% 1.0% 1.0% 1.0% 3.5% 2.5% Liquidity: Loan to share ratio** 77.3% 82.8% 80.8% 82.0% 83.2% 84.5% 84.5% 84.5% Asset quality: Delinquency rate** 0.86% 0.81% 0.80% 0.80% 0.85% 0.85% 0.85% 0.90% Net charge off rate* 0.54% 0.59% 0.60% 0.60% 0.60% 0.60% 0.60% 0.65% Earnings: Return on average assets (ROA)* 0.77% 0.77% 0.80% 0.85% 0.90% 0.85% 0.85% 0.75% Capital adequacy: Net worth ratio** 10.9% 11.0% 10.9% 11.0% 11.1% 11.2% 11.2% 11.3% *Quarterly data, annualized. **End of period ratio. Additional information and updates available on our MCUE website.

CUNA Economic and Credit Union Forecast September 2018

CUNA Economic and Credit Union Forecast September 2018 For Additional Information Contact: Jordan van Rijn Senior Economist Credit Union National Association Telephone: 800-356-9655 E-Mail: jvanrijn@cuna.coop