Q1 2016 Industry Insights Report U.S. Financial Services Nidhi Verma Director, Research and Consulting TransUnion
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
The consumer Improved access and continued low levels of delinquency
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 1.6 190 180 170 160 1.4 1.2 1.0 0.8 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 Q1 2010 2011 2012 2013 2014 2015 2016 0.6 2016 TransUnion LLC All Rights Reserved 4
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 1.4 150 140 130 120 110 1.3 1.2 1.1 1.0 0.9 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 Q1 2010 2011 2012 2013 2014 2015 2016 0.8 2016 TransUnion LLC All Rights Reserved 5
Average consumer balance indexed to Q1 2010 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 Q1 2010 1.4 1.3 Auto Mortgage Bankcard Private label HELOC Personal loan 1.2 1.1 1.0 0.9 0.8 0.7 0.6 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 2016 TransUnion LLC All Rights Reserved 6
% 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 Q1 2010 2011 2012 2013 2014 2015 2016 2016 TransUnion LLC All Rights Reserved 7
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. 2016 TransUnion LLC All Rights Reserved 8
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 balances) Q1 2010 101 issuers Q1 2016 87% 91% 89% 92% 91% 73 issuers 81% 70% 65% 2010 2015 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. 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 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 $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 balances ($ in billions) $900 $155 ($170) $800 $700 $51 $6 ($2) $600 $500 $605 Total balance as of Q1 2015 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 Q1 2016 127 million consumers 133 million consumers 2016 TransUnion LLC All Rights Reserved 12
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% 2010 2011 2012 2013 2014 2015 VantageScore 3.0 Risk Ranges Subprime = 300 600; Near prime = 601 660; Prime = 661 720; Prime plus = 721 780; Super prime = 781-850 2016 TransUnion LLC All Rights Reserved 13
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% 2010 2011 2012 2013 2014 Q1 2015 0 4 8 12 16 20 24 28 32 36 40 44 48 Months on book 2016 TransUnion LLC All Rights Reserved 14
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 originations) Market share of top 20 issuers (measured in terms of balances) 39 issuers 31 issuers Q1 2010 Q1 2016 98% 99% <100% 99% 90% 91% 91% 79% 2010 2015 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 $20 Total balances Average account balance $1,800 $1,600 Average account balance $- Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 $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) $140 $120 $18 ($15) $5 ($1) $100 $103 $110 $80 Total balance as of Q1 2015 Existing consumers opening new card(s) Existing consumers paying down balances on existing card(s) New consumers Charged-off Total balance as of Q1 2016 64 million consumers 66 million consumers 2016 TransUnion LLC All Rights Reserved 18
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% 2010 2011 2012 2013 2014 2015 VantageScore 3.0 Risk Ranges Subprime = 300 600; Near prime = 601 660; Prime = 661 720; Prime plus = 721 780; Super prime = 781-850 2016 TransUnion LLC All Rights Reserved 19
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% 0 4 8 12 16 20 24 28 32 36 40 44 48 Months on book 2010 2011 2012 2013 2014 Q1 2015 2016 TransUnion LLC All Rights Reserved 20
Auto sector Growth fueled by higher consumer participation and average new loan amounts
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 33 209 lenders 45 126 50% 40% 30% 20% Market share by lender type (measured in balances) Q1 2010 Q1 2016 40% 34% 28% 29% 25% 19% 18% 49 12 13 19 26 2010 2015 10% 0% 7% Banks Credit unions Captives Independent 2016 TransUnion LLC All Rights Reserved 22
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) Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 60 60 60 63 66 71 76 $14,000 2016 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 ($423) $1,400 $1,200 ($3) $1,000 $800 $941 $1,042 $600 Total balance as of Q1 2015 New auto loans/leases Average new loan amount Paydown Repossession Total balance as of Q1 2016 28 million new loans/leases were originated at 3% higher average new loan amount 2016 TransUnion LLC All Rights Reserved 24
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 2.2 2.0 1.8 1.6 2.2 1.9 1.8 1.7 Super prime Prime plus Prime Near prime Subprime 1.4 1.2 1.0 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 VantageScore 3.0 Risk Ranges Subprime = 300 600; Near prime = 601 660; Prime = 661 720; Prime plus = 721 780; Super prime = 781-850 2016 TransUnion LLC All Rights Reserved 25
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 2015 80% 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 = 300 600; Near prime = 601 660; Prime = 661 720; Prime plus = 721 780; Super prime = 781-850 2016 TransUnion LLC All Rights Reserved 26
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% 2010 2011 2012 2013 2014 Q1 2015 0 4 8 12 16 20 24 28 32 36 40 44 48 Months on book 2016 TransUnion LLC All Rights Reserved 27
Real estate lending sector Rising home values supporting growth
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 74 72 68% 67% 70 68 66 64 62 66% 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 Q1 2010 2011 2012 2013 2014 2015 2016 61% ; Federal Reserve Bank of St. Louis 2016 TransUnion LLC All Rights Reserved 29
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 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016-4% -3% -5% 4% 0% 2% 2016 TransUnion LLC All Rights Reserved 30
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 $225,000 1.2 $200,000 1.1 1.0 0.9 Home value indexed to Q4 2009 $175,000 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 0.8 New loan data source: TransUnion consumer credit database Home value data source: Zillow 2016 TransUnion LLC All Rights Reserved 31
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% 2010 2014 2015 VantageScore 3.0 Risk Ranges Subprime = 300 600; Near prime = 601 660; Prime = 661 720; Prime plus = 721 780; Super prime = 781-850 2016 TransUnion LLC All Rights Reserved 32
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 $400 15 11 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 16 15 14 13 12 11 10 Number of consumers with a HELOC balance (in millions) 2016 TransUnion LLC All Rights Reserved 33
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 Q1 2015 Originations Paydown Charged-off Total balance as of Q1 2016 2016 TransUnion LLC All Rights Reserved 34
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) 1.8 1.6 Credit Lines $ Balances $ Home Equity 1.8 1.4 1.2 1 0.8 0.6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010 2011 2012 2013 2014 2015 2016 0.8 0.7 Sources: TransUnion Credit Database and Federal Reserve Flow of Funds series 2016 TransUnion LLC All Rights Reserved 35
Personal loans (unsecured) Fastest growing loan portfolio, with new entrants and consumer demand across the spectrum
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 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 15 14 13 12 11 10 9 Number of consumers with a personal loan (in millions) 2016 TransUnion LLC All Rights Reserved 37
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) $150 $59 $9 ($47) $125 $100 $75 $50 $71 ($1) $91 $25 $0 Total balance as of Q1 2015 New loans Average new loan amount Paydown Charged-off Total balance as of Q1 2016 14 million new loans were originated at 15% higher average new loan amount 2016 TransUnion LLC All Rights Reserved 38
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% 17 43 18% 30 20 8 2010 2015 31% 30% 3% 2010 2015 2016 TransUnion LLC All Rights Reserved 39
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 = 300 600; Near prime = 601 660; Prime = 661 720; Prime plus = 721 780; Super prime = 781-850 FinTechs 2016 TransUnion LLC All Rights Reserved 40
First 12 months 90+DPD However, credit performance varies by lender even within the same risk tier Q4 2014 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 = 300 600; Near prime = 601 660; Prime = 661 720 0.8% 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 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: mid-august Invitations to follow soon For more information and insights visit: transunioninsights.com/iir