Q Industry Insights Report

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1 Q Industry Insights Report U.S. Financial Services Nidhi Verma Director, Research and Consulting TransUnion

2 In this session, we will review industry trends for major lending products with respect to: The consumer Credit participation trends Shifts in credit wallet distribution Credit performance trends The marketplace Lenders serving the market and shifts in market share Drivers of balance growth Key delinquency trends 2016 TransUnion LLC All Rights Reserved 2

3 The consumer Improved access and continued low levels of delinquency

4 Number of consumers with access (in millions) More consumers are gaining access to credit bankcard being the primary driver for growth Number of consumers with access to revolving line of credit 200 Number of consumers HELOC Private label Bankcard Consumers with access (indexed to Q1 2010) 150 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q TransUnion LLC All Rights Reserved 4

5 Number of consumers with a non-revolving loan A robust auto finance market is creating growth in consumers with non-revolving loans Number of consumers with non-revolving loans 160 Number of consumers Mortgage Auto Personal loans Consumers with a balance (indexed to Q1 2010) 100 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q TransUnion LLC All Rights Reserved 5

6 Average consumer balance indexed to Q Average debt levels have remained relatively stable since 2010, except for auto and personal loan balances Average consumer balance (for those who carry a balance) indexed to Q Auto Mortgage Bankcard Private label HELOC Personal loan Q Q Q Q Q Q Q TransUnion LLC All Rights Reserved 6

7 % of consumers with a serious delinquency While consumer-level delinquency rates are low, recently a slight increase was observed in credit card and auto Serious consumer-level delinquency rates (60+ DPD for all and 90+ DPD for credit cards) Auto Mortgage Bankcard Private label HELOC Personal loans 8% 7% 6% 5% 4% 3% 2% 1% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q TransUnion LLC All Rights Reserved 7

8 To summarize the consumer perspective: Positive dynamics Strong consumer confidence Potential headwinds Energy slump impact on specific regions Greater access to credit Steady levels of revolving debt Slightly rising trends in delinquency for card and auto market Well-managed and low levels of delinquencies Importantly, this is a well-functioning market with no immediate causes for concern. However, there are dynamics that merit scrutiny TransUnion LLC All Rights Reserved 8

9 Bankcard sector Strong balance growth led by originations

Bankcard market share is diversifying as competition increases Number of bankcard issuers (with >10,000 annual account originations) Market share of top 20 issuers (measured in terms of

10 Bankcard market share is diversifying as competition increases Number of bankcard issuers (with >10,000 annual account originations) Market share of top 20 issuers (measured in terms of balances) Q issuers Q % 91% 89% 92% 91% 73 issuers 81% 70% 65% Top 5 issuers Top 10 issuers Top 15 issuers Top 20 issuers 2016 TransUnion LLC All Rights Reserved 10

Outstanding balances (in $ billions) Average consumer balance has remained steady since 2013.

11 Outstanding balances (in $ billions) Average consumer balance has remained steady since However, aggregate balances have grown consistently Outstanding balances and average balance per consumer Total balances Average consumer balance $660 $6,000 $640 $620 $600 $580 $560 $540 $520 Q Q Q Q Q Q Q $5,800 $5,600 $5,400 $5,200 $5,000 $4,800 Average consumer balance Year-over-year growth in balances -8.7% -0.1% -0.5% 1.3% 4.6% 6.4% 2016 TransUnion LLC All Rights Reserved 11

Outstanding balances (in $ billions) Balance growth has been driven primarily by originations both from existing customers and new entrants opening their first bankcard Year-over-year change in

12 Outstanding balances (in $ billions) Balance growth has been driven primarily by originations both from existing customers and new entrants opening their first bankcard Year-over-year change in balances ($ in billions) $900 $155 ($170) $800 $700 $51 $6 ($2) $600 $500 $605 Total balance as of Q Consumers who opened new bankcard(s) New entrants Consumers who built balances on existing cards Consumers who paid down existing balances Charged-off $645 Total balance as of Q million consumers 133 million consumers 2016 TransUnion LLC All Rights Reserved 12

13 Origination distribution by risk tier These originations have shifted toward non-prime risk tiers since 2013 Bankcard originations by risk tier 100% 80% 60% Super prime Prime plus Prime Near prime Subprime 40% 20% 27% 30% 30% 35% 38% 0% VantageScore 3.0 Risk Ranges Subprime = ; Near prime = ; Prime = ; Prime plus = ; Super prime = TransUnion LLC All Rights Reserved 13

14 Delinquency Rate As a result, account-level delinquencies for recent vintages have been increasing 90+ DPD rate (account-level, cumulative) 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Q Months on book 2016 TransUnion LLC All Rights Reserved 14

15 Private label card sector Continued growth in access and average account balance

While the private label card market remains a fairly concentrated market, top five issuers have lost some share in the past six years Number of private label card issuers (with >10,000 annual account

16 While the private label card market remains a fairly concentrated market, top five issuers have lost some share in the past six years Number of private label card issuers (with >10,000 annual account originations) Market share of top 20 issuers (measured in terms of balances) 39 issuers 31 issuers Q Q % 99% <100% 99% 90% 91% 91% 79% Top 5 issuers Top 10 issuers Top 15 issuers Top 20 issuers 2016 TransUnion LLC All Rights Reserved 16

Outstanding balances (in $ billions) Both total private label balances and average account balance have increased markedly Outstanding balances and average balance per account $120 $100 $80 $60 $40

17 Outstanding balances (in $ billions) Both total private label balances and average account balance have increased markedly Outstanding balances and average balance per account $120 $100 $80 $60 $40 $20 Total balances Average account balance $1,800 $1,600 Average account balance $- Q Q Q Q Q Q Q $1,400 Year-over-year growth in balances -7.5% 2.1% 2.9% 3.9% 6.3% 6.4% 2016 TransUnion LLC All Rights Reserved 17

Outstanding balances (in $ billions) Balance growth was primarily driven by originations, but somewhat offset by consumers paying down existing cards Year-over-year change in balances ($ in billions)

18 Outstanding balances (in $ billions) Balance growth was primarily driven by originations, but somewhat offset by consumers paying down existing cards Year-over-year change in balances ($ in billions) $140 $120 $18 ($15) $5 ($1) $100 $103 $110 $80 Total balance as of Q Existing consumers opening new card(s) Existing consumers paying down balances on existing card(s) New consumers Charged-off Total balance as of Q million consumers 66 million consumers 2016 TransUnion LLC All Rights Reserved 18

19 Origination distribution by risk tier Similar to bankcard, these originations have continued to shift toward non-prime risk tiers Private label card originations by risk tier 100% 80% 60% Super prime Prime plus Prime Near prime Subprime 40% 20% 25% 28% 30% 32% 36% 39% 0% VantageScore 3.0 Risk Ranges Subprime = ; Near prime = ; Prime = ; Prime plus = ; Super prime = TransUnion LLC All Rights Reserved 19

20 Delinquency Rate The increasing share of non-prime originations is causing higher account-level delinquencies for recent vintages 90+ DPD rate (account level, cumulative) 8% 7% 6% 5% 4% 3% 2% 1% 0% Months on book Q TransUnion LLC All Rights Reserved 20

21 Auto sector Growth fueled by higher consumer participation and average new loan amounts

22 More lenders have entered the auto finance market, which remains highly fragmented Number of lenders with >10,000 annual loan originations Banks Credit unions Captives Independent lenders 114 lenders lenders % 40% 30% 20% Market share by lender type (measured in balances) Q Q % 34% 28% 29% 25% 19% 18% % 0% 7% Banks Credit unions Captives Independent 2016 TransUnion LLC All Rights Reserved 22

23 Outstanding balances (in $ billions) 76 million consumers now have an auto loan in the U.S., and the average consumer balance has reached $18,000 Outstanding auto balances and average consumer balance Total balances Average consumer balance $1,200 $20,000 $1,000 $800 $600 $400 $200 $19,000 $18,000 $17,000 $16,000 $15,000 Average consumer balance $ $- Number of consumers with an auto loan/lease (millions) Q Q Q Q Q Q Q $14, TransUnion LLC All Rights Reserved 23

Outstanding balances (in $ billions) Q1 2016 balance growth was primarily driven by originations and higher average new loan amount Year-over-year change in balances ($ in billions) $1,600 $512 $15

24 Outstanding balances (in $ billions) Q balance growth was primarily driven by originations and higher average new loan amount Year-over-year change in balances ($ in billions) $1,600 $512 $15 ($423) $1,400 $1,200 ($3) $1,000 $800 $941 $1,042 $600 Total balance as of Q New auto loans/leases Average new loan amount Paydown Repossession Total balance as of Q million new loans/leases were originated at 3% higher average new loan amount 2016 TransUnion LLC All Rights Reserved 24

25 Origination risk tier distribution Origination growth has come from all risk tiers, but has been led by the non-prime 2.4 Auto loan and lease account originations by risk tier Super prime Prime plus Prime Near prime Subprime Q Q Q Q Q Q Q VantageScore 3.0 Risk Ranges Subprime = ; Near prime = ; Prime = ; Prime plus = ; Super prime = TransUnion LLC All Rights Reserved 25

26 Origination risk tier distribution Non-prime supply in the auto finance market varies by lender independent lenders are driving majority of non-prime growth 100% Risk distribution of originations by lender type % 60% 79% Super prime Prime plus Prime Near prime Subprime 40% 20% 28% 32% 31% 0% Banks Credit unions Captives Independent lenders VantageScore 3.0 Risk Ranges Subprime = ; Near prime = ; Prime = ; Prime plus = ; Super prime = TransUnion LLC All Rights Reserved 26

27 Delinquency rate As expected, growth in non-prime risk tiers is causing an increase in account-level delinquencies for recent vintages 60+ DPD rate (account-level, cumulative) 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Q Months on book 2016 TransUnion LLC All Rights Reserved 27

28 Real estate lending sector Rising home values supporting growth

29 Consumers with a mortgage (in millions) The number of consumers with a mortgage has declined in tandem with a market trend away from homeownership Consumers with a mortgage balance and U.S. homeownership rate % 67% % 65% 64% 63% 62% Homeownership rate 60 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q % ; Federal Reserve Bank of St. Louis 2016 TransUnion LLC All Rights Reserved 29

30 Outstanding balances (in $ trillions) Mortgage balances have been trending up since 2013 Outstanding mortgage balances $9.0 $8.5 $8.0 $7.5 $7.0 Year-over-year growth in balances Q Q Q Q Q Q Q % -3% -5% 4% 0% 2% 2016 TransUnion LLC All Rights Reserved 30

31 Average new mortgage loan Balance growth is being driven by average new loan originated, which is following rising home values Average new mortgage loan and home values $225, $200, Home value indexed to Q $175,000 Q Q Q Q Q Q Q New loan data source: TransUnion consumer credit database Home value data source: Zillow 2016 TransUnion LLC All Rights Reserved 31

32 Origination distribution by risk tier We also observed mortgage originations grow share within prime and below risk tiers a sign of increasing supply Mortgage originations by risk tier 100% 80% 60% Super prime Prime plus Prime Near prime Subprime 40% 20% 31% 34% 39% 0% VantageScore 3.0 Risk Ranges Subprime = ; Near prime = ; Prime = ; Prime plus = ; Super prime = TransUnion LLC All Rights Reserved 32

33 Outstanding balances (in $ billions) HELOC balances are continuing to decrease as consumer participation has declined Outstanding HELOC balances and consumers with a balance Total balances Consumers with a balance $650 $600 $550 $500 $450 $ Q Q Q Q Q Q Q Number of consumers with a HELOC balance (in millions) 2016 TransUnion LLC All Rights Reserved 33

34 Outstanding balances (in $ billions) Clearly, HELOC origination growth is being offset by loans hitting end-of-draw period Year-over-year change in balances ($ in billions) $53 ($74) $500 $450 $461 ($0.5) $440 $400 Total balance as of Q Originations Paydown Charged-off Total balance as of Q TransUnion LLC All Rights Reserved 34

35 U.S. home equity has risen at a faster rate than the credit lines and balances in this market HELOC credit lines, balances and home equity (indexed to Q1 2010) Credit Lines $ Balances $ Home Equity Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Sources: TransUnion Credit Database and Federal Reserve Flow of Funds series 2016 TransUnion LLC All Rights Reserved 35

36 Personal loans (unsecured) Fastest growing loan portfolio, with new entrants and consumer demand across the spectrum

37 Outstanding balances (in $ billions) Growth in consumers participating in the personal loan market has driven growth in personal loan balances Outstanding personal loan balances and consumers Total balances Consumers with a balance $100 $90 $80 $70 $60 $50 $40 Q Q Q Q Q Q Q Number of consumers with a personal loan (in millions) 2016 TransUnion LLC All Rights Reserved 37

38 Outstanding balances (in $ billions) Q balance growth was primarily driven by originations and higher average new loan amount Year-over-year change in balances ($ in billions) $150 $59 $9 ($47) $125 $100 $75 $50 $71 ($1) $91 $25 $0 Total balance as of Q New loans Average new loan amount Paydown Charged-off Total balance as of Q million new loans were originated at 15% higher average new loan amount 2016 TransUnion LLC All Rights Reserved 38

39 Higher consumer participation has been well supported by new entrants in this market. FinTech lenders are now leading market share Number of lenders originating more than 10,000 annual accounts Market share of balances originated Banks Credit unions 121 lenders Traditional finance companies FinTech lenders 24 34% 29% 70 lenders 34 23% 15 32% % % 30% 3% TransUnion LLC All Rights Reserved 39

40 Originated balances by risk tier While lenders may vary in risk strategies, the primary focus of growth has generally been the near prime and prime risk tiers 2015 personal loan originations (balances) by lender type 100% Super prime 90% Prime plus 80% Prime 70% Near prime 60% 50% 60% 60% 59% Subprime 40% 30% 20% 45% 10% 0% Banks Credit unions Traditional finance companies VantageScore 3.0 Risk Ranges Subprime = ; Near prime = ; Prime = ; Prime plus = ; Super prime = FinTechs 2016 TransUnion LLC All Rights Reserved 40

41 First 12 months 90+DPD However, credit performance varies by lender even within the same risk tier Q personal loan originations Account-level 90+ DPD as of 12 months-on-book 20% 21% Banks Credit unions Traditional finance companies FinTech 13% 10% VantageScore 3.0 Risk Ranges Subprime = ; Near prime = ; Prime = % 0.6% 1.2% 1.5% 0.3% 0.4% 0.8% 0.7% Subprime Near prime Prime 2016 TransUnion LLC All Rights Reserved 41

To summarize the marketplace: Competition is

trends and greater access enabling card balance

performance Continued strong growth across all risk

Recent vintages show deterioration in credit

risk tiers Higher new average loan amounts

depletion Opportunity exists around future growth,

consumer demand being met by new entrants As market

42 To summarize the marketplace: Competition is diversifying market share Strong consumer spending trends and greater access enabling card balance growth Recent vintages show deterioration in credit performance Continued strong growth across all risk tiers Higher portion of purchases being financed Recent vintages show deterioration in credit performance Balance growth Greater access within all risk tiers Higher new average loan amounts Origination momentum not enough to offset balance depletion Opportunity exists around future growth, as home values and interest rates rise Strong consumer demand being met by new entrants As market share shifts, overall delinquencies are likely to rise 2016 TransUnion LLC All Rights Reserved 42

Please join us for our upcoming webinars: Prama this summer Q2 2016 industry forecast:

43 Please join us for our upcoming webinars: Prama this summer Q industry forecast: mid-august Invitations to follow soon For more information and insights visit: transunioninsights.com/iir

Q Industry Insights Report

Q Industry Insights Report Q3 2015 Industry Insights Report U.S. Financial Services Nidhi Verma Director, Financial Services Research and Consulting TransUnion TransUnion s Industry Insights Report is a quarterly overview summarizing