call dates: august 19 & 20, 2015 - callahan &...

Data for June 30, 2015Call Dates: August 19 & 20, 2015

Supported by:

Bill Clark/CQ Roll Call File Photo

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Economic Updates for the Credit Union Community

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Data for June 30, 2015Call Dates: August 19 & 20, 2015

Bill Clark/CQ Roll Call File Photo

Supported by:

Sponsored by:9

Agenda

Economic OutlookDwight Johnston, Chief Economist, California & Nevada Credit UnionLeagues

2Q 2015 Credit Union Trends & Key Issues“Big and Small Credit Unions Alike Show Growing Success”Chip Filson, Chairman, Callahan & AssociatesJay Johnson, Executive Vice President, Callahan & Associates

Pursuing PerformanceSpencer Pratt, Executive Vice President, Leaders Credit Union

Sponsored by:

Dwight JohnstonChief Economist, California & Nevada CU Leagues

D.J.’s ECONOMIX

Sponsored by:

Nonfarm Payrolls

-800

-700

-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

Jan

-08

Jul-08

Jan

-09

Jul-09

Jan

-10

Jul-10

Jan

-11

Jul-11

Jan

-12

Jul-12

Jan

-13

Jul-13

Jan

-14

Jul-14

Jan

-15

Jul-15

-800

-700

-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

Sponsored by:

Payroll growth could slow - but in a good way

• Payroll growth 245k average for past 12 months

• U.S. needs only 75k to 100k to stay even

• 8.2 million unemployed; 5.2 million job openings

• Millions are still unemployed – location, location, location

• Many areas and job sectors reporting difficulty in finding basic skill workers

• What this means – the real labor market is tightening; Expect monthly payroll gains do drop to 150-175k in months ahead – upside is higher wages

Sponsored by:

Retail Sales & Confidence -Consumers confident but reluctant to spend

20

30

40

50

60

70

80

90

100

110

120

Jan-

05

Jan-

06

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15Ju

l-15

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

14

CONCCONF MOM Index

RSTA YOY

Sponsored by:

Total vehicle sales –Where is plateau for auto sales?

9

10

11

12

13

14

15

16

17

18

19

20

21

22

Feb-9

9Aug-9

9Feb

-00

Aug-0

0Feb

-01

Aug-0

1Feb

-02

Aug-0

2Feb

-03

Aug-0

3Feb

-04

Aug-0

4Feb

-05

Aug-0

5Feb

-06

Aug-0

6Feb

-07

Aug-0

7Feb

-07

Aug-0

8Feb

-09

Jul-0

9Ja

n-10

Jul-1

0Ja

n-11

Jul-1

1Ja

n-12

Jul-1

2Ja

n-13

Jul-1

3Ja

n-14

Jul-1

4Ja

n-15

Jul-1

5

Sponsored by:

Dramatic shift in borrowing

Sponsored by:

Strategic considerations

• Millennials paying for cars, student loans, and higher rents

• Not much left for credit card purchases and c.c. debt

• Will be prospects for home ownership – later

• Who/what is your target market?

Sponsored by:

Housing – new issues to surface if rates rise

• Rate jump in 2013 put the brakes on the housing market – in many pricey areas prices virtually flat for more than a year

• Could be worse this time around as many areas already unaffordable

–On the other hand• If rates rise, lack of supply could become an even bigger factor

— who will want to give up a 3.75% mortgage?

• Rents are climbing – ownership now cheaper in some areas

• Growth in rentals bodes well for housing long-term if renters can save enough for down payments

Sponsored by:

Fed action still a toss-up

• Fed says they have no firm plan – Believe them

• Most data, especially job numbers, say the Fedshould begin the “normalization” process

• Disinflation/deflation fears could keep Fed onthe sidelines

• Fed’s # 1 reason to go – Get it over with

Sponsored by:

General outlook still good for rest of 2015 into 2016

• Consumers should ramp up spending on continued slump in gas prices

• Housing activity improving despite tight supply — bodes well for construction — higher rates a modest risk now

• Payroll gains very good — Wages could catch up

• Fed likely to tighten in September unless China story continues to hit stock market

• Best guess: Rates should trend higher — but global disruptions still a factor

Sponsored by:

QUESTIONS?

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Economic Updates for the Credit Union Community

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Sponsored by:

Recent headlines underscore U.S. economic momentum

(The Wall Street Journal, July 15, 2015)

(Fortune, August 13, 2015)

(CNN Money, August 18, 2015)

(The Wall Street Journal, August 18, 2015)

(MarketWatch, August 18, 2015 )

(Bloomberg, August 3, 2015)

(The Wall Street Journal, August 18, 2015)

Sponsored by:

U.S. Credit Union Key Indicators

As of 6/30/1512-mo. Growth

2Q 201512-mo. Growth

2Q 2014

Assets $1.18T 6.0% 4.5%

Loans $755.0B 10.7% 9.8%

Shares $1.00T 5.1% 3.4%

Investments $367.6B -3.0% -3.8%

Capital $134.2B 6.5% 7.5%

Members 102.5M 3.4% 2.9%

Source: Callahan’s Peer-to-Peer Analytics

Sponsored by:

Loan originations reach an all-time high through the second quarter

• Credit unions originate the highest ever amount of loans for the first six months of the year, reaching $200 billion YTD

• First mortgage originations experience double digit growth and market share reaches a new high for the first half of the year

• Members are borrowing the highest amounts ever from credit unions

Sponsored by:

$66.4$41.4

$61.8

$9.5

$10.6

$12.3

$92.6

$106.4

$117.3

$8.1$8.1

$8.8$176.6

$166.4

$200.2

$0

$50

$100

$150

$200

$250

2013 2014 2015

Bill

ion

s

YTD Loan OriginationsData as of June 30

MBL

Consumer

Other RE

First Mortgage

Year-to-date total loan originations rise 20.3% versus June 2014, led by first mortgage


Sponsored by:

9.8%

8.4%

13.1%

11.5%

16.9%

-0.8%

10.0%

10.7%

6.9%

12.6%

13.2%

19.6%

2.6%

9.8%

-5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Total Loans

Credit Card

MBL

Used Auto

New Auto

Other RE

1st Mtg

12-Mo. Growth in Loans OutstandingData as of June 30

2Q15

2Q14

Growth in outstanding loans accelerates; three loan categories show double digit growth


Sponsored by:

22 states post double-digit YOY balance sheet loan growth

State Loan GrowthLoans Outstanding

(millions)June 2015

Loans Outstanding (millions)June 2014

Idaho 21.8% $5,138.3 $4,293.1

Colorado 20.5% $13,193.8 $11,332.2

Alaska 17.7% $6,538.8 $5,554.8

Delaware 15.6% $986.7 $858.0

New Hampshire 15.5% $5,125.6 $4,439.8

Utah 15.3% $13,790.3 $11,959.4

Virginia 14.4% $84,173.2 $73,587.0

Wisconsin 13.7% $22,218.4 $19,559.8

Nevada 13.5% $1,052.3 $1,985.1

Iowa 13.2% $9,983.7 $8,826.7


Sponsored by:

Sponsored by:

First mortgage market share reaches a new mid-year high of 8.5% in 2015

Source: Callahan’s Peer-to-Peer Analytics, Mortgage Bankers Association

$31.4 $33.9 $56.3 $66.4 $41.4 $61.8

4.4%

5.7%

7.3%6.8%

8.4%8.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

$0

$10

$20

$30

$40

$50

$60

$70

2010 2011 2012 2013 2014 2015

Bill

ion

s

YTD First Mortgage Originations & Market ShareData as of June 30

1st Mtg Orig. Market Share

Sponsored by:

Sponsored by:

Credit union auto lending market share tops 16.3%, its highest June level since 2Q09

15.0%14.2%

15.0%14.4%

15.7%16.3%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

2010 2011 2012 2013 2014 2015

Auto Market ShareData as of June 30

Auto Market Share

Source: AutoCount Data from Experian Automotive; Callahan & Associates

Sponsored by:

Members’ usage of credit union loan products is on the rise

14.5%14.8%

15.0%15.5%

16.2%

16.7%

16.7%

16.1%15.9%

16.3%

17.0%

18.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

2010 2011 2012 2013 2014 2015

Credit Card Auto

Loan Product Penetration Rates*Data as of June 30

* Loan Product Penetration Rate =% of members holding a loan account


Sponsored by:

Sponsored by:

Loan originations per member are at an all-time second quarter high of $1,953


$1,475

$1,953

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Loan Originations Per MemberData as of June 30

Sponsored by:

72.9%

69.5%

67.0% 67.4%

71.6%

75.4%

60.0%

62.0%

64.0%

66.0%

68.0%

70.0%

72.0%

74.0%

76.0%

78.0%

80.0%

2010 2011 2012 2013 2014 2015

Loan-to-Share RatioData as of June 30

The loan-to-share ratio is at its highest level since December 2009 (76.1%)


Sponsored by:

Increases in loan balances continue to outpace that of shares

$48$52

$43$47

$39 $42$37

$44$41

$29 $26

$19

$11

-$3

-$14-$18

-$28 -$29-$25 -$26

-$23

-$40

-$30

-$20

-$10

$0

$10

$20

$30

$40

$50

$60

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

Bill

ion

s

Annual Net Liquidity ChangeData as of June 30

* Net liquidity from shares= $ share growth - $ loan growth

Loan growth outpacing share growth


Sponsored by:

0.58%

3.22%

-2.13%

0.14%

0.25%

1.19%

-0.85%

0.07%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

Price Risk as a % of Net Worth Price Risk as a % of Investments

The est. total price risk for all investments (HTM & AFS) is not only decreasing but also negligible

Price RiskData as June 30


Sponsored by:

44.9%41.9%

40.5% 39.4%38.0% 37.3%

35.3%36.9%

39.8% 40.3%

36.2%37.6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Higher loan paydown rate in 2015 indicates credit unions have stronger ability to reprice new assets based on their projected higher loan cash flows

Paydown Rate on LoansData as of June 30


Sponsored by:

Share balances hit $1 trillion as member relationships continue to grow

• Share growth is accelerating versus 2014

• Core deposits are driving total share growth

• The average member relationship reaches a new high

Sponsored by:

Share balances surpass $1 trillion as members direct more savings to credit unions

$103

$201

$307

$403

$503

$611

$735

$823

$922

$1,001

0

200

400

600

800

1000

1200

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

Bill

ion

s

Historical Share BalancesFor all U.S. Credit Unions

Source: Callahan’s Peer-to-Peer Analytics, CUNA Mutual

Sponsored by:

$47.5 $41.3 $61.8 $46.0 $35.8 $48.5

6.6%

5.4%

7.7%

5.3%

3.9%

5.1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

$0

$10

$20

$30

$40

$50

$60

$70

2010 2011 2012 2013 2014 2015

Bill

ion

s

12-Mo. Change and Growth in Outstanding Share BalancesData as of June 30

12-Mo. $ Change in Outstanding Share Balances 12-Mo. % Change in Outstanding Share Balances


Share growth is on the rise with balances up $48.5 billion since June 2014

Sponsored by:

Strong core deposit growth fuels growth in total shares

3.9%

-2.4%

-1.3%

4.5%

6.8%

7.8%

5.1%

0.0%

-1.4%

3.9%

8.4%

9.1%

-5% 0% 5% 10%

Total Shares

Share Certs.

IRA/Keogh

MMA

Share Drafts

Regular Shares

YOY Growth by Share Product TypeData as of June 30

2Q15

2Q14


Sponsored by:

Sponsored by:

Average member relationship increased 4.0% from a year ago

$15,022$15,259

$15,658$16,039

$16,472

$17,131

$10,000

$11,000

$12,000

$13,000

$14,000

$15,000

$16,000

$17,000

$18,000

2010 2011 2012 2013 2014 2015

Average Member Relationship*Data as of June 30

* Average Member Relationship = (Loans+Shares-MBL)/Members


Sponsored by:

Does asset size determine growth rates?

Sponsored by:

Loan and share growth continue to rise in 2015

10.8% 10.7%

4.8% 5.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Loan Growth vs Share GrowthData as of June 30

Loan Growth Share Growth


Sponsored by:

All asset peer groups posted double-digit growth in YTD loan originations versus the first half of 2014

Credit Unions under $250M

Credit Unions $250M-$500M

Credit Unions $500M-$1B

Credit Unions over $1B

YOY Growth in YTD Loan Originations 10.4% 17.9% 19.0% 23.5%

Total YTD Loan Origination YOY Growth by Asset Peer GroupData as of June 30, 2015


Sponsored by:

Highest YOY loan origination growth comes from credit unions in the smallest asset class


Whisker Plot of Loan Origination GrowthData as of June 30, 2015

95%

75%

25%

5%

Distribution Percentile

Sponsored by:

There is no statistically significant relationship between asset size and key growth metrics


Correlation Coefficient TableData as of June 30, 2015

Loan Origination Growth

Loan Growth

Share Growth

Member Growth

Total Income Growth

ROA

Assets 0.004 0.067 -0.002 0.000 0.045 0.052

Correlation between asset size of a credit union and key

growth and financial metrics is close to zero

R value A rule of thumb: interpreting positive R vales

+0.70 and up Very strong positive relationship

+0.40 to +0.69 Strong positive relationship

+0.30 to +0.39 Moderate positive relationship

+0.20 to +0.29 Weak positive relationship

+0.01 to +0.19 No or negligible relationship

Total positive correlation (R=1)

No correlation (R=0)

Sponsored by:

Example: Scatter plot shows that the correlation between assets and loan origination growth is null


Scatter PlotData as of June 30, 2015

A least-squares trend line for all U.S. credit unions

Note: Extreme outliers for both categories are not shown in the picture but included in the least-square trend-line calculation.

R = 0.004

Sponsored by:

Leaders Credit Union

As of June 2015 12-mo. Growth

Assets $255.4M 13.4%

Loans $213.2M 17.5%

Shares $209.9M 12.1%

Members 36,215 9.4%

Branches 6

Loans/Shares 101.6%

ROA 1.31%

Net Worth/Assets 12.6%

Spencer Pratt

Executive Vice President

Leaders Credit Union

Jackson, Tennessee

[email protected]

Sponsored by:


Strong Historical Performance: Compound Annual Asset Growth Rate of 13.3% vs. Industry Average of 6.5%

$86.9$99.1 $108.3

$124.8 $130.1$142.2

$170.3

$208.8$225.3

$255.4

$0

$50

$100

$150

$200

$250

$300

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mill

ion

s

Total AssetsData as of June 30

Total Assets

Sponsored by:

Leaders Credit Union Driving Philosophies

Institution-wide goal to be relevant to our members

Ability and willingness to leverage capital; actively pursue qualified opportunities

Strive to deliver member value in areas overlooked by other financial institutions

Drive growth via “marginal” improvements across multiple product lines and operating areas

Sponsored by:

Pursuing Performance – Actively Building Member Relationships

Front-line staff trained to identify opportunities

Delivering value to new members through relationship pricing model

Established call center to proactively engage members and pursue loan recapture

Dedicated employee to manage and develop SEGrelationships

Sponsored by:

Pursuing Performance – Savings and Loan Product Innovation

Internally Inspired

80/20 purchase mortgage product (80% 1st / 20% 2nd)

$4 million since product was launched in July 2014

Externally Inspired

5% 1-year CD

Sponsored by:

Pursuing Performance – Excelling in Core Competencies – Lending

Started indirect lending program in 2008

Leveraged expertise by establishing CUSO to support other credit unions’ indirect lending programs

Offer indirect lending consulting and assistance to four other credit unions

Promote lending growth by increasing efficiencies, and consolidating back-office decisioning process

Extended hours for better business

Sponsored by:

Proactively Seek Member Feedback

“This had to have been the best experience I've ever had with handling a loan. Love the fact that each time I walk in I'm personally greeted”

“I am so grateful for Leaders and the many benefits extended to me. This credit union treats members like family!”

“I love the fact of not being just a number…The different services they offer out-weighs those of regular banks”

“The mobile app is easy to use and runs super smoothly…Also, the electronic check deposit is the fastest I've seen, it's just as fast as in-branch deposits. So glad I switched to Leaders!”

Sponsored by:

Credit unions are finding new ways to increase income

• Year-over-year income growth soars, growing 7.1% since June 2014

• Return on assets remains steady at 0.82%

• Net worth rises, reaching 11.4% in June 2015

Sponsored by:

Income at credit unions growing 7.1% year-over-year despite steady interest rates

$25.4 $24.7 $24.9 $24.8 $25.3 $27.1

-3.8% -2.7%

0.5%-0.4%

2.1%

7.1%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

$24.0

$24.5

$25.0

$25.5

$26.0

$26.5

$27.0

$27.5

2010 2011 2012 2013 2014 2015

Bill

ion

s

Total Income & YOY Income GrowthData as of June 30

Total Income YOY Income Growth


Sponsored by:

Net interest margin continues to move off all-time low but remains below operating expense ratio

3.04% 3.14%

3.11% 3.09% 3.07%3.10%

3.25%3.17%

2.96%

2.77%2.82% 2.84%

2.60%

2.70%

2.80%

2.90%

3.00%

3.10%

3.20%

3.30%

2010 2011 2012 2013 2014 2015

Operating Expense Ratio Net Interest Margin

Net Interest Margin vs. Operating Expense RatioData as of June 30


Sponsored by:

Other operating income grows on mortgage and interchange activity; fee income declines

0.77% 0.72% 0.72% 0.70% 0.65% 0.62%

0.49% 0.54% 0.63% 0.68%0.61% 0.68%

1.26% 1.26%1.35% 1.38%

1.26% 1.30%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

2010 2011 2012 2013 2014 2015

Non-Interest Income as a % of Avg. AssetsData as of June 30

Fee Income Other Operating Income


Sponsored by:

0.45%

0.79%0.87% 0.86% 0.82% 0.82%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

2010 2011 2012 2013 2014 2015

Return on AssetsData as of June 30

Return on assets at 0.82% is still leading to higher capital levels…


Sponsored by:

9.9% 10.2% 10.2% 10.5% 10.8% 10.9%

1.0% 1.0% 0.8% 0.7% 0.6% 0.6%10.9% 11.1% 11.0% 11.2% 11.4% 11.5%

0%

2%

4%

6%

8%

10%

12%

2010 2011 2012 2013 2014 2015

Net Worth and Total CapitalData as of June 30

Net Worth Additional Capital

As net worth and capital ratios continue to rise


Sponsored by:

Small credit unions’ median value for net income growth is comparable to that of mid-sized credit unions


Whisker Plot of Net Income GrowthData as of June 30, 2015

90%

75%

25%

10%

Distribution Percentile

Sponsored by:

Recovering payday loan borrower gives thanks for Exodus Lending

• On average borrower from a payday lender will pay an annual interest rate of 573%

• Exodus Lending, a 501(c)(3), is a substitute for payday lender focused on bringing financial education, freedom, and stability to payday borrowers

• Working with Holy Trinity Lutheran Church, Lutheran Social Service, and Sunrise Bank.

• Provides short-term loans

• Requires every borrower to have a form of income and a bank account

• Exodus adds $25 to borrowers bank accounts for every $100 they put away, not to exceed $400

• Hopes to provide 100 loans in 2016

Source: StarTribune

www.startribune.com/recovering-payday-loan-borrower-gives-thanks-for-exodus-lending/321936391/

Sponsored by:

Americans are struggling to raise funds, 50% cannot raise $2,000 in 30 days

Sponsored by:

Unbanked and Underbanked in the US

Sponsored by:

The Diversity of Economic Organizations is a vital reality of the US “Capitalistic” System

Sponsored by:

In the beginning no regulator…and now it’s all regulation

The social mission in 1934 was “people of small means”; Two-page (2) law with no regulation (or regulator) for safety and soundness.

Over the years, the social mission eroded to being listed as “findings” in the preamble of H.R. 1151 ( 1998) with a change to “people of modest means.”

The current law has no provisions for enforcement of the social mission and the number of pages allocated to safety and soundness by a regulator is nearly 100%.

Sponsored by:

Second quarter 2015 foreshadows a record breaking year for credit unions

• Members relationships continue to grow

• Increasing auto and mortgage market share

• Record breaking loan originations

• Rising core deposits contribute to a growing loan portfolio

• Total income is growing, passing its highest second quarter total since 2010

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call dates: august 19 & 20, 2015 - callahan &...

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