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The Economy and Credit Unions

The Economy and Credit Unions. Catalyst Economic Forum October 22, 2013 Bill Hampel, Chief Economist Credit Union National Association bhampel@cuna.coop. Economic Overview. Economy gradually accelerates to 3% in 2014. Inflation a non-issue through 2014.

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The Economy and Credit Unions

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  1. The Economy and Credit Unions Catalyst Economic Forum October 22, 2013 Bill Hampel, Chief Economist Credit Union National Association bhampel@cuna.coop

  2. Economic Overview • Economy gradually accelerates to 3% in 2014. • Inflation a non-issue through 2014. • Unemployment flirts with 6.5% by end of next year. • 10 Year Treasury averages 3% in 2014. • Fed Funds stuck until at least 2014 III.

  3. Economic Overview • Economy gradually accelerates to 3% in 2014. • Inflation a non-issue through 2014. • Unemployment flirts with 6.5% by end of next year. • 10 Year Treasury averages 3% in 2014. • Fed Funds stuck until at least 2014 III. Unless Congress messes up

  4. Interest Rate Outlook

  5. Interest Rates1988 to Present

  6. The Fed’s Monetary Policy • Unusually clear • Fed Funds Rate Policy • No change until unemployment reaches 6.5%, unless inflation outlook rises substantially. • Quantitative easing (monthly purchases of long-term securities) • “Tapering” to begin soon, to end around time unemployment rate reaches 7%.

  7. The Fed’s Monetary Policy • Unusually clear, sort of. • Fed Funds Rate Policy • No change until unemployment reaches 6.5%, unless inflation outlook rises substantially. • Quantitative easing (monthly purchases of long-term securities) • “Tapering” to begin soon?? To end around time unemployment rate reaches 7%.

  8. “Real” 10 Year Treasury YieldCurrent Yield Minus Trailing One Year Core CPI

  9. Unemployment Rates and RecessionsPercent of the Labor Force

  10. Treasury Yield Curves

  11. Yield Curve Changes in 2013 Basis Points

  12. Credit Union Outlook Through 2014 • Moderate savings and asset growth • Low interest rates, spending rising • Weak, but recovering loan growth • Household de-leveraging is moderating • Improving confidence, building backlogs • Loan delinquencies and losses about back to normal • Modest outlook for net income • Lower loan loss provision expense • Lower stabilization assessments • Net interest income still constrained • Refi revenue moderating • Rising net worth ratios

  13. Credit Union Loan GrowthAnnual Percent Change

  14. Changing Distribution of Loans

  15. Loan Growth by Type Into and Out of The Great Recession

  16. Non-Mortgage Loan Growth

  17. Mortgage Loan Growth

  18. Credit Union First Mortgage Originations 2013 Q2 Annualized $ Trillions

  19. Credit Union Share of First Mortgage Originations

  20. 2013 Auto Lending Outlook • Stronger economy, improving labor markets • Modest increases in market interest rates • Declining but affordability still high • Lots of pent up demand • Continuing shift from used to new • Fewer incentives = increased opportunity for CUs • Direct rates vs. banks remain very favorable • 2.6% vs 3.9%

  21. Annual Light Vehicle SalesMillions

  22. Annual Light Vehicle SalesMillions

  23. Annual Light Vehicle SalesMillions

  24. 2013 Auto Lending Outlook • Stronger economy, improving labor markets • Modest increases in market interest rates • Declining but affordability still high • Lots of pent up demand • Continuing shift from used to new • Fewer incentives = increased opportunity for CUs • Direct rates vs. banks remain very favorable • 2.6% vs 3.9%

  25. 2013 RE Lending Outlook • Stronger economy, improving labor markets • Modest increases in market interest rates • Home prices up • Affordability still high, although declining • Lots of pent up demand/supplies low • Originations will slow • Refi’s down • Purchase money mortgages up

  26. Interest Rates1988 to Present

  27. Credit Union DelinquencyDollars Delinquent as Percent of Total Portfolio

  28. Various Loan Delinquency Rates

  29. Mortgage Delinquency Rates

  30. Net Loan Charge-0ffsTotal Portfolio

  31. Net Charge-Offs by Loan Type

  32. Credit Union Savings GrowthAnnualized Percent Change

  33. Credit Union Net IncomeTo Average Assets

  34. Net Capital to Assets

  35. What’s Driving Earnings? POSITIVES: • Lower provision expenses • Lower stabilization assessments NEGATIVE, for a while longer: • Net Interest Income TURNING NEUTRAL • Mortgage refinance revenue AT RISK • Debit interchange revenue

  36. Corporate Stabilization AssessmentsBasis Points of Insured Shares ?

  37. The Economy and Credit Unions Catalyst Economic Forum October 22, 2013 Bill Hampel, Chief Economist Credit Union National Association bhampel@cuna.coop

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