U.S. Economic Outlook and

Implications for Credit Unions

September 20, 2018

Samira Salem, Ph.D., Senior Policy AnalystCredit Union National Association

ssalem@cuna.coop

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© Credit Union National Association 2017.

All rights reserved.

100% of dues go toward advocacy.

Fierce advocacy lies at

the heart of everything we

do for our members.

© Credit Union National Association 2017.

All rights reserved.

AdvocateAdvocacy lies at the

heart of everything we

do for members

UnifyUnequaled network

looking out for credit

union’s best interests

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to make service

excellence a reality

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difference

Powered by purpose: CUNA membership

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AdvocateAdvocacy lies at the

heart of everything we

do for members

UnifyUnequaled network

looking out for credit

union’s best interests

AdvanceProviding the tools

to make service

excellence a reality

PromoteCUNA supports

the credit union

difference

Powered by purpose: CUNA membership

Learn more about the power of membership at

cuna.org/join

50 STATES and D.C.

credi t un ionse rv ice prov idersboard members

credit union professionals110 million

1CUNA5,0005,900CREDIT UNIONS

70,000300,000cred i t un ion

members

11 CORPORATE CREDIT UNIONS

Credi t Un ion Serv ice Organ i zat ions950

50 STATES and D.C.

credi t un ionse rv ice prov idersboard members

credit union professionals110 million

1CUNA5,0005,900CREDIT UNIONS

70,000300,000cred i t un ion

members

11 CORPORATE CREDIT UNIONS

Credi t Un ion Serv ice Organ i zat ions950

Agenda

▪Update on the Economy

▪Credit Union Trends

Economic Update

Strong economic growth (% change GDP)

-0.2

2.6

-1.9

4.6

7.3

4.2

3.5

3.5

4.2

3.7

1.9

3.6

2.7

4.0

2.7

3.8

4.5

4.4

4.7

4.1

1.0

1.8

2.8

3.8

3.3

2.7

1.8

-0.3

-2.8

2.5

1.6

2.2

1.7

2.6

2.9

1.5

2.3

4.2

3.0

2.2

5

3.2

2.62.1

80 85 90 95 00 05 10 15 2019

Forecast

Post-WWII Average

Average since 1980

Average in current recovery

2018 Qtr 2 (YOY) = 4.2%

Source: Bureau of Economic Analysis (BEA)

2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Pe

rce

nt

Inflation (%) Fed Target Inflation Rate (%)

Inflation is ticking up(YOY Core Inflation, PCE)

Source: BEA

211

267

78

282

326

191

256

164

88

351

264

234

103

257

235

174

34

285

325

175

264

140

172180

259

200

73

175

155

239

190

221

14

271

216

175176

324

155

175

268

248

147

201

0

50

100

150

200

250

300

350

400

2015 2016 2017 2018 Aug. '18

Tho

usa

nd

sU.S. job growth is healthy…

2018 average through Aug.: 211K jobs/mo.2017 average: 182K jobs/mo.

Source: Bureau of Labor Statistics (BLS)

0

4.6%

5.8%

9.3% 9.6%8.9%

8.1%7.4%

6.2%

5.3%4.9% 4.4%

4.1% 3.9% 3.8% 4.0%

0

0.02

0.04

0.06

0.08

0.1

0.12

5% Full Employment

U.S. unemployment is at historically low levels…

Source: BLS

Yet, wage growth is weak

-0.7

3.2

0.2

-1.1

-0.1

0.5 0.5

2.1

1.2

0.6

0.1

-0.05-0.2 -0.2

0.2

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 April'18

(YOY)

May'18

(YOY)

June'18

(YOY)

Jul'18

(YOY)

Aug'18

(YOY)

Real Wage Growth (% Change)

Source: BLS

http://fred.stlouisfed.org/graph/?g=lgky

The trade dispute

Source: Marketplace https://www.marketplace.org/topics/world/trade-showdown

CUNA Economic

ForecastSeptember 12 2018

Actual Results Quarterly Results/Forecasts Annual Forecasts

5 Yr Avg 2017 2018:1 2018:2 2018:3 2018:4 2018 2019

Growth rates:

Economic Growth (% chg GDP)* 2.37% 2.20% 2.20% 4.20% 3.00% 3.00% 3.00% 2.25%

Inflation (% chg CPI)* 1.30% 2.10% 2.50% 2.90% 2.90% 2.90% 2.80% 2.25%

Unemployment Rate 5.60% 4.10% 4.10% 4.00% 3.90% 3.80% 3.80% 4.00%

Federal Funds Rate (effective) 0.36% 1.33% 1.68% 1.82% 2.15% 2.40% 2.40% 2.90%

10-Year Treasury Rate 2.26% 2.40% 2.74% 2.80% 3.00% 3.25% 3.25% 3.50%

10-Year-Fed Funds Spread 1.90% 1.07% 1.06% 0.98% 0.85% 0.85% 0.85% 0.40%

*Percent change, annual rate. All other numbers are end-of-period values.

Credit Union Trends

Credit union membership growth(12 month growth, %))

1.3

1.61.4

0.7

1.5

2.1

2.5

3.1

3.5

4.1 4.1 4.1 4.1

3.5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q2(YOY)

2018Forecast

2019Forecast

Source: NCUA and CUNA

Credit union loan growth (Real GDP – Chainweighted)

9.5

8

8.2

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

-2

-1

0

1

2

3

4

5

6

7

8

80 85 90 95 00 05 10 15 2019 Forecast

GDP Growth (left axis)

CU Loan Growth (right axis)

Source: BEA, NCUA and CUNA

Credit quality is healthy

CU Delinquency Rate vs. Unemployment Rate

0.50

0.75

1.00

1.25

1.50

1.75

2.00

3

4

5

6

7

8

9

10

11

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

CU Loan Growth Rate vs. Unemployment Rate

2

3

4

5

6

7

8

9

10

11

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Source: BLS and CUNA

0.93

1.37

1.821.75

1.60

1.15

1.01

0.850.81 0.83 0.81

0.670.75

0.85

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Mid-Year2018

2018Forecast

2019Forecast

Credit quality is healthy

CU dollar delinquency rates (End of period, %)

Source: NCUA and CUNA

Weak CU savings balance growth(% change)

5.1

6.9

10.3

4.4

5.2

6.1

3.6

4.5

6.8

7.6

6

4.3

6

7

0

2

4

6

8

10

12

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Qtr2 2018

Forecast

2019

Forecast

Source: NCUA and CUNA

0.64

0.31

0.18

0.50

0.68

0.84

0.770.80

0.75 0.76 0.77

0.900.85

0.75

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Mid-Year2018

2018Forecast

2019Forecast

Healthy bottom line results ROA (Net income as % of average assets)

Source: NCUA and CUNA

CUNA Credit Union ForecastSeptember 12, 2018

Actual Results Quarterly Results/Forecasts Annual Forecasts5 Yr Avg 2017 2018:1 2018:2 2018:3 2018:4 2018 2019

Growth rates:

Savings growth 5.7% 6.0% 3.9% 0.4% 0.8% 0.8% 6.0% 7.0%Loan growth 9.8% 10.0% 1.6% 3.2% 2.4% 2.4% 9.5% 8.0%Asset growth 6.2% 6.6% 2.7% 0.9% 1.2% 1.2% 6.5% 7.5%Membership growth 3.5% 4.1% 1.4% 1.3% 0.7% 0.7% 4.1% 3.5%

Liquidity:

Loan-to-share ratio** 77.3% 82.8% 81.0% 83.2% 84.7% 85.9% 85.9% 86.7%

Asset quality:

Delinquency rate** 0.86% 0.81% 0.66% 0.67% 0.70% 0.75% 0.75% 0.85%Net charge-off rate* 0.54% 0.59% 0.60% 0.61% 0.60% 0.60% 0.60% 0.65%

Earnings:

Return on average assets (ROA)* 0.77% 0.77% 0.90% 0.89% 0.80% 0.80% 0.85% 0.75%

Capital adequacy:

Net worth ratio** 10.9% 11.0% 10.9% 11.1% 11.1% 11.2% 11.2% 11.1%

*Quarterly data, annualized. **End of period ratio. Additional information and updates available on our MCUE website.