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					  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.
• 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.
        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
Interest Rate Outlook
Interest Rates
 1988 to Present
   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%.
    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%.
“Real” 10 Year Treasury Yield
Current Yield Minus Trailing One Year Core CPI
Unemployment Rates and
     Recessions
   Percent of the Labor Force
Treasury Yield Curves
Yield Curve Changes in 2013
Basis Points
  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
Credit Union Loan Growth
     Annual Percent Change
Changing Distribution of Loans
Loan Growth by Type
   Into and Out of
The Great Recession
Non-Mortgage Loan Growth
Mortgage Loan Growth
Credit Union First Mortgage
        Originations    2013 Q2
                         Annualized
$ Trillions
   Credit Union Share of
First Mortgage Originations
      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
   üDirect rates vs. banks remain very favorable
     ü 2.6% vs 3.9%
Annual Light Vehicle Sales
          Millions
Annual Light Vehicle Sales
          Millions
Annual Light Vehicle Sales
          Millions
      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
   üDirect rates vs. banks remain very favorable
     ü 2.6% vs 3.9%
               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
Interest Rates
 1988 to Present
Credit Union Delinquency
 Dollars Delinquent as Percent of Total Portfolio
Various Loan Delinquency Rates
Mortgage Delinquency Rates
Net Loan Charge-0ffs
      Total Portfolio
Net Charge-Offs by Loan Type
Credit Union Savings Growth
     Annualized Percent Change
Credit Union Net Income
      To Average Assets
Net Capital to Assets
    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
Corporate Stabilization Assessments
       Basis Points of Insured Shares




                                        ?
  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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posted:3/15/2014
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