trendwatch 3q 2018 - callahan &...
TRANSCRIPT
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Data for September 30, 2018
Call Date: November 15, 2018
1
Trendwatch 3Q 2018The Annual Report for the Industry
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Welcome!
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To help you follow along with TrendWatch, earlier today we sent the presentation slides for the event to the email address you used to register for TrendWatch. We will also send you a copy of slides after the event.
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Slide Link
Today’s slides can be found online at:
http://bit.ly/3Q-18
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Use the Q&A box located on the right side of the screen to type your comments or questions.
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Empower the next generation of credit union members800-541-1500 | studentchoice.org/creditunions
In-School | Refinance | Custom Grad Counseling | iGrad | CollegePAYE Marketing | Performance | Compliance
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Today’s Lineup
Market UpdateJason Haley, Managing Director, Investment Management Group, ALM First
3Q 2018 Credit Union Trends & Key IssuesJon Jeffreys, Managing Partner, Callahan & Associates
Sam Taft, AVP, Analytics & Business Development, Callahan & Associates
Thanking Members Through Black Friday SpecialsDan Clarke, Chief Operating Officer, Service Credit Union
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Presented By:Presented By:Presented By:Presented By
ALM FIRST MARKET UPDATE
Callahan Quarterly Trendwatch November 15, 2018
Jason Haley
Managing Director, Investment Management Group
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Jason HaleyManaging Director, Investment Management Group
Speaker
11
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Economic Update
• October was a tough month for most financial assets
– S&P 500 -6.8%, Hang Seng -10%, Bloomberg/Barclays U.S.
Aggregate Index (Fixed Income) -0.79%
– Macro risks (trade, Italian fiscal woes, hawkish Fed policy, higher
interest rates, etc.) still driving activity, but investors have also
been concerned that corporate earnings growth has peaked
– Trump & China’s Xi have made constructive statements with
regards to trade negotiations in recent days
• Economic data trend has been solid
– Initial estimate of Q3 GDP growth was 20 bps above
expectations at 3.5% q/q
– Included robust personal & government consumption readings
– Inventories added 2 points (most since 2015), and import growth
was strong (potential frontloading of orders ahead of tariffs)
– October wage growth +3.1% y/y12
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131313
Inflation Pressures Emerging
13
• Consumer prices have gradually risen the low end of the
Fed’s target (2%)
• A consistent theme from Q3 earnings seasons was a
discussion of upward cost pressures
• Higher costs included wages, transportation, input costs,
tariffs, etc.
• Kellogg CEO Steve Cahillane: “We think 2019 will be more
inflationary then we have seen historically since the
recession.”
• Clorox & Coca-Cola recently announced price increases for
certain products, & airlines are expected to hike fares as well
• Will companies be able to pass through cost increases? Will it
cause the Fed to be more aggressive in policy tightening?
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Accommodative, Neutral, or Restrictive?
14
Date Speaker Comments
10/1 Rosengren (Boston)
My preference for a strategy…allows a continued, but gradual pace of monetary
tightening. The median path of interest rate projections…implies interest rates
gradually rising to become mildly restrictive.
10/3 Evans (Chicago)
I am more comfortable with the inflation outlook today than I have been for the past
several years… I'm looking for policy to move gradually to a mildly, modestly restrictive
stance because the outlook is good.
10/3 Powell (Chair)
Interest rates are still accommodative, but we're gradually moving to a place where
they'll be neutral -- not that they'll be restraining the economy. We may go past neutral.
But we're a long way from neutral at this point, probably.
10/5 Williams (Governor)
If you look at my colleagues from our recent estimates, people put that at about 3
percent for the short-term interest rate. We are just a little above 2 percent for the fed
funds target, so we have a ways to go to get to some idea of what people think of as
neutral. We don't really know where that is.
Source: J.P. Morgan
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151515
Fed Funds – FOMC Projections & Market Pricing
15
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2911 Turtle Creek Blvd.
Suite 500
Dallas, Texas 75219
Phone: 800.752.4628
Fax: 214.987.1052
www.almfirst.com
2911 Turtle Creek Blvd.
Suite 500
Dallas, Texas 75219
Phone: 800.752.4628
Fax: 214.987.1052
www.almfirst.com
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Request your Custom Investment Profile!
Get the data you need to help answer these key questions:
Contact us at [email protected] to request yours today. Or visit www.trustcu.com to learn more about our portfolios.
Complimentary 3Q Data Investment Profiles Now Available
• How your credit union's liquidity position stacks up to your peers?
• How the institution's investment portfolio composition and term structure compare?
• What the portfolio's duration position implies for future interest rate movements?
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Industry Overview
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Growth slows in major segments, membership expands at highest rate on record
As of 9/30/201812-mo. Growth
3Q1812-mo. Growth
3Q17
Assets $1,459.1B 5.7% 6.7%
Loans $1,039.2B 9.7% 10.5%
Shares $1,225.1B 5.2% 6.7%
Investments $342.9B -5.5% -2.2%
Capital $166.1B 6.4% 6.4%
Members 116.9M 4.5% 4.0%
Source: Callahan’s Peer-to-Peer Analytics
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Membership growth accelerates 45 basis points YoY
97.2 100.0 103.4 107.5 111.9 116.9
2.2%
2.9%
3.4%
4.0% 4.0%
4.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
70
75
80
85
90
95
100
105
110
115
120
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Mill
ion
s
Membership and Annual GrowthData as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
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Credit unions continue to expand relationships with members
Credit Card Real Estate Share Draft Auto
17.4% 4.4%
52.3%
21.1%3Q18
3Q13
Change
15.6% 4.4%
57.8%
16.5%
+1.8% 0.0% +5.5% +4.6%
Source: Callahan’s Peer-to-Peer Analytics
Penetration RatesData as of 9.30.18
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Loans per member expands 4.9% year-over-year
$6,178 $6,595 $7,048 $7,435 $7,914 $8,301
$9,414 $9,471 $9,663 $10,075 $10,328 $10,383
$15,592 $16,066$16,711
$17,510$18,242 $18,684
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Average Member RelationshipData as of 9.30.18
Loans/Member Shares/Member
Source: Callahan’s Peer-to-Peer Analytics
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Credit unions fund 1 out of every 5 auto loans nationwide
14.7%16.3% 16.3%
18.4% 19.0%20.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Credit Union Auto Finance Market ShareData as of 9.30.18
AutoCount Data from Experian AutomotiveSource: Callahan’s Peer-to-Peer Analytics
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First mortgage originations grow 1.1% annually
Mortgage Bankers AssociationSource: Callahan’s Peer-to-Peer Analytics
$97.0 $68.1 $96.0 $102.9 $104.3 $105.5
7.0%
7.2%7.6%
6.8%
8.1% 8.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
$0
$20
$40
$60
$80
$100
$120
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
First Mortgage Originations & Market ShareData as of 9.30.18
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Revolving consumer loans increase 7.8% year-over-year
$34.2 $35.3 $36.3 $38.1 $41.1 $44.5 $47.5 $51.1 $55.6 $59.9
3.7%
4.3%4.5% 4.7%
5.0%5.2% 5.3%
5.6% 5.7%6.0%
0%
1%
2%
3%
4%
5%
6%
7%
$0
$10
$20
$30
$40
$50
$60
$70
3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
Revolving Consumer Loan Balances and CU Market ShareData as of 9.30.18
Source: Federal Reserve
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All major loan products see 5-year expansion in market share
Auto 1st Mortgage Credit Card
20.6% 8.4%
5.0%
3Q18
3Q13
Change
14.7% 7.0%
6.0%
+5.9% +1.4% +1.0%
Source: Callahan’s Peer-to-Peer Analytics
Market ShareData as of 9.30.18
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Savings & Borrowing
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Share growth slows for the second consecutive year
$918 $951 $1,005 $1,092 $1,165 $1,225
6.1%3.6%
5.7%
8.6%
6.7%
5.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
Total Share Balances and Annual GrowthData as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
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-$3.7-$1.3
$5.7
$19.1
$5.2 $2.8
-$10
$0
$10
$20
$30
$40
$50
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
Quarterly Share ChangeData as of 9.30.18
3Q net share growth shrinks as consumer confidence remains strong
Source: Callahan’s Peer-to-Peer Analytics
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Loan growth has outpaced share growth for 22 consecutive quarters
69.7%
74.0%
77.5%78.5%
81.3%
84.8%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
90.0%
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Loan-to-Share RatioData as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
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Net liquidity falls $31.5 billion since last September
Source: Callahan’s Peer-to-Peer Analytics
-$19
$6
$23
-$16
-$5-$7
$30
-$21-$19
-$12
$30
-$26-$23
-$40
-$30
-$20
-$10
$0
$10
$20
$30
$40
3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18
Bill
ion
s
Net Liquidity ChangeData as of 9.30.18
Quarterly Annual
* Net liquidity from shares= $ share growth - $ loan growth
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33.9%
37.5%
12.9%
15.7%
23.2%
21.6%
8.7%
6.4%
21.2%
18.8%
3Q13
3Q18
0% 20% 40% 60% 80% 100%
Total Shares OutstandingData as of 9.30.18
Regular Shares & Dep. Share Drafts MMA IRA/KEOGH Share Certificates
Core deposits make up 74.8% of share portfolio
Source: Callahan’s Peer-to-Peer Analytics
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Sponsored by:
Certificates are also the only deposit product to accelerate year-over-year
6.7%
8.1%
9.5%
5.8%
-0.1%
5.3%
5.2%
5.8%
7.3%
1.1%
-0.5%
9.2%
-2% 0% 2% 4% 6% 8% 10%
Total Shares
Regular Shares & Dep.
Share Drafts
MMA
IRA/Keogh
Share Certificates
12-Mo. Growth in Shares SegmentsData as of 9.30.18
3Q18
3Q17
Source: Callahan’s Peer-to-Peer Analytics
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Certificate growth accelerates 3.8 percentage points YoY
$194.5 $190.5 $191.2$200.3
$210.9$230.3
-3.7%
-2.1%
0.4%
4.7%
5.3%
9.2%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
$0
$50
$100
$150
$200
$250
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
Share Certificate Balances and Annual GrowthData as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
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Total borrowings increase 15.0% year-over-year
$30.1 $38.6 $47.7 $48.4 $51.8 $59.6
2.8%
3.4%
4.0%3.7% 3.8%
4.1%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
Total Borrowings and Borrowings/AssetsData as of 9.30.18
Total Borrowings Borrowings/Assets
Source: Callahan’s Peer-to-Peer Analytics
![Page 36: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/36.jpg)
Sponsored by:
Participation sales plateau as rising rates squeeze margins
$2.7 $4.0 $5.3 $7.3 $7.6 $7.4
5.7%
48.3%
33.8%
37.6%
3.4%
-2.4%
-5%
5%
15%
25%
35%
45%
55%
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
YTD Total Participations Sold and Annual GrowthData as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
![Page 37: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/37.jpg)
Thanking Members through
Black Friday Specials
Dan Clarke, Chief Operating Officer
Service Credit Union
![Page 38: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/38.jpg)
About Service Credit Union
• Headquartered in
Portsmouth, NH
• Approximately $3.4B
in assets
• Over 254,000
members
• 722 employees
• 51 branch locations
![Page 39: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/39.jpg)
The Challenge/Opportunity
• Started offering Black Friday specials in 2004 at a
much smaller ($15M) credit union – found we could
bring in 10% of our deposits in a single day.
• Not the same sense of urgency or model at Service, but
it was so popular we’ve carried on the tradition.
• It’s an opportunity to make a stressful day fun for
both members and staff.
• The specials create excitement, with members asking
what we have planned each year.
![Page 40: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/40.jpg)
Last Year’s Specials
![Page 41: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/41.jpg)
Variety is Key & Cost-Effective
![Page 42: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/42.jpg)
The Results
• In 2017, the 10% certificate special was very popular.
• We opened more than 2,500 certificates and 200 personal loans!
• Attracted a lot of attention, without costing a lot of money due to the short (3-month) term and maximum deposit amount.
• We’ve seen a strong retention rate from those accounts.
• Although the intent was to reward existing members, 8% of the accounts were new members
![Page 43: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/43.jpg)
Lessons Learned & Keys to Success
1. Be different - Don’t do the same things everyone else
is doing and vary the offers to keep it interesting.
2. Be creative - Show off the fun side of banking that day
as everyone knows it can be exhausting for those
working and members shopping.
3. Keep the credit unions’ needs in mind – Reward
members while helping meet the organization’s goals.
4. Reward staff – We give a trophy to the branch that has
the best production on that day. It’s a fun competition
that focuses on recognition rather than cash
compensation.
5. Keep it light - By keeping it light, everyone can have a
great time.
![Page 44: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/44.jpg)
Questions & Discussion
![Page 45: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/45.jpg)
Sponsored by:
Lending & Investments
![Page 46: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/46.jpg)
Sponsored by:
Origination growth up, $24.8 billion higher than 3Q17 levels
$270.4 $262.8 $310.4 $342.8 $365.0 $389.9
10.6%
-2.8%
18.1%
10.4%
6.5% 6.8%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
YTD Loan Originations and Annual Origination GrowthData as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
![Page 47: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/47.jpg)
Sponsored by:
$93.8 $96.4
$110.1
$124.4 $125.4
$135.2
$0
$20
$40
$60
$80
$100
$120
$140
$160
3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18
Bill
ion
s
Quarterly Loan OriginationsData as of 9.30.18
Quarterly originations reach a 3Q record high
Source: Callahan’s Peer-to-Peer Analytics
![Page 48: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/48.jpg)
Sponsored by:
Credit unions added $91.7 billion in loans to their books in the last year
$639.2 $703.6 $778.7 $857.3 $947.5 $1,039.2
6.8%
10.1%10.7%
10.1%10.5%
9.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
$0
$200
$400
$600
$800
$1,000
$1,200
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
Total Loans and Annual GrowthData as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
![Page 49: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/49.jpg)
Sponsored by:
Originations of adjustable-rate products accelerate
Source: Callahan’s Peer-to-Peer Analytics
$76.5 $42.7 $67.6 $72.1 $69.1 $67.6
$12.4
$14.8
$17.6$20.3 $23.6 $25.9
$8.2
$10.6
$10.8$10.5 $11.6 $12.6
$0
$20
$40
$60
$80
$100
$120
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
YTD Mortgage Originations By TypeData as of 9.30.18
Fixed Balloon ARM
![Page 50: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/50.jpg)
Sponsored by:
Secondary market sales fall as origination portfolio shifts
$97.0 $68.1 $96.0 $102.9 $104.3 $106.2
48.1%
32.6%
38.7% 40.5%36.2%
32.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
$0
$20
$40
$60
$80
$100
$120
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
YTD 1st Mortgage Originations & Secondary Market Sales as % of 1st Orig.Data as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
![Page 51: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/51.jpg)
Sponsored by:
41.6%
40.9%
11.2%
8.4%
19.7%
21.2%
10.9%
14.0%
6.4%
5.8%
10.1%
9.8%
3Q13
3Q18
0% 20% 40% 60% 80% 100%
Total Loans OutstandingData as of 9.30.18
1st Mortgage Other RE Used Auto New Auto Credit Cards Other Loans
Real estate loans account for 49.3% of the portfolio
Source: Callahan’s Peer-to-Peer Analytics
![Page 52: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/52.jpg)
Sponsored by:
10.5%
8.9%
11.2%
14.3%
5.7%
10.6%
9.7%
8.4%
9.8%
12.5%
6.5%
10.0%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%
Total
Credit Card
Used Auto
New Auto
Other RE
1st Mtg
Annual Growth in Loans Outstanding Data as of 9.30.18
3Q18
3Q17
Other RE loans are the only product to see accelerating growth
Source: Callahan’s Peer-to-Peer Analytics
![Page 53: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/53.jpg)
Sponsored by:
56.9%
5.6%
8.5%
2.8%
21.3%
1.2%3.8%
Credit Union Investment PortfolioData as of 9.30.18
US Govt., Fed. Agency, and OtherSecurities
Corporate CUs (incl. Cash)
Banks and S&Ls
Cash on Hand
Cash at FIs
Cash Equiv.
Other Inv & Insurance
Total investment portfolio contracts 5.5% year-over-year
Source: Callahan’s Peer-to-Peer Analytics
![Page 54: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/54.jpg)
Sponsored by:
47.8%
60.9%
56.9%
26.9%
6.2%
5.6%
13.5%
12.2%
8.5%
2.8%
2.1%
2.7%
4.0%
14.4%
21.3%
2.2%
1.3%
1.2%
2.7%
3.0%
3.8%
3Q09
3Q13
3Q18
0% 20% 40% 60% 80% 100%
Historical Investment CompositionData as of 9.30.18
US Govt., Fed. Agency, and Other Sec. Corporate CUs (incl. Cash)Banks and S&Ls Cash on HandCash at FIs Cash Equiv.Other Inv & Insurance
Source: Callahan’s Peer-to-Peer Analytics
Fed balances have increased share 6.9 percentage points since 2013
![Page 55: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/55.jpg)
Sponsored by:
Asset Quality
![Page 56: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/56.jpg)
Sponsored by:
1.02%0.85% 0.78% 0.77% 0.79% 0.71%
2.83%
2.11%
1.61%1.45%
1.20%1.06%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
DelinquencyData as of 9.30.18
Credit Unions Banks
Source: Callahan’s Peer-to-Peer Analytics* As of 2Q18
Delinquency down 8 basis points over the year, but up 4 basis points over the quarter
*
![Page 57: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/57.jpg)
Sponsored by:
Total 1st Mortgage Auto Other RE
Indirect Credit Card Member Commercial
0.71% 0.53% 0.60% 0.51%
0.61% 1.26%
0.08% 0.04% 0.04% 0.05%
0.05% 0.05%
Source: Callahan’s Peer-to-Peer Analytics
Annual Change in DelinquencyData as of 9.30.18
1.22%0.74%
Overall, asset quality improves over the year
![Page 58: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/58.jpg)
Sponsored by:
0.56% 0.48%0.46%
0.53%0.56% 0.58%0.60%
0.45%0.40%
0.44%0.46% 0.48%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Net Charge-Off RatioData as of 9.30.18
Credit Unions Banks
Charge-offs increase year-over-year for both credit unions and banks
Source: Callahan’s Peer-to-Peer Analytics* As of 2Q18
*
![Page 59: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/59.jpg)
Sponsored by:
Credit unions increase allowance reserves, driving coverage ratio 11.0 percentage points higher year-over-year
85.9%
127.6%
60.1%
117.7%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Coverage Ratio: Allowance for Loan Losses/Delinquent LoansData as of 9.30.18
Credit Unions Banks
Source: Callahan’s Peer-to-Peer Analytics* As of 2Q18
*
![Page 60: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/60.jpg)
Sponsored by:
The Bottom Line
Revenue and ROA rise. Credit union capital levels remain strong.
![Page 61: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/61.jpg)
Sponsored by:
Total revenue accelerates over the last year
$26.7 $27.8 $29.4 $32.0 $35.5 $40.3
$5.7 $5.5 $5.6$5.9
$6.2
$6.6
$5.2 $5.1$6.1
$6.6$7.0
$8.2
-1.3%
2.4%
6.9%8.4%
9.3%
13.1%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
$0
$10
$20
$30
$40
$50
$60
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
Total Revenue and Annual GrowthData as of 9.30.18
Interest Income Fee Income Other Operating Income YOY Growth
Source: Callahan’s Peer-to-Peer Analytics
![Page 62: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/62.jpg)
Sponsored by:
Investment yields increase 40 basis points from 3Q17
1.10%
1.61%2.01%
0.67%
0.62% 0.73%
5.05%
4.54% 4.66%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Yield on Investments Cost of Funds Yield on Loans
Yield AnalysisData as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
![Page 63: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/63.jpg)
Sponsored by:
NIM rises 14bp year-over-year, in-line with Opex ratio for the first time since June 2011
3.15%3.09%
3.12%3.10%
3.07%3.12%
2.79%2.85% 2.86%
2.89%
2.98%
3.12%
2.60%
2.70%
2.80%
2.90%
3.00%
3.10%
3.20%
3.30%
3.40%
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Net Interest Margin vs. Operating Expense RatioData as of 9.30.18
Operating Expense Ratio Net Interest Margin
Source: Callahan’s Peer-to-Peer Analytics
36 bps
![Page 64: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/64.jpg)
Sponsored by:
Interest income gains outpace CoF increases, lead to 14bp margin lift
As of 09.30.2018
As of09.30.2017
12-mo. Change (bps)
Interest Income/Avg. Assets 3.76% 3.52% +24
Interest Expense/Avg. Assets 0.64% 0.54% +10
Net Interest Margin 3.12% 2.98% +14
Non-Interest Income/Avg. Assets 1.41% 1.34% +7
Non-Interest Expense/Avg. Assets 3.12% 3.07% +5
Provision for Loan Losses 0.47% 0.46% +1
ROA 0.93% 0.79% +14
Source: Callahan’s Peer-to-Peer Analytics
![Page 65: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/65.jpg)
Sponsored by:
Margin improvements drive ROA higher
0.80%
0.83%
0.80%
0.78%0.79%
0.93%
0.70%
0.75%
0.80%
0.85%
0.90%
0.95%
3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
ROAData as of 9.30.18
Source: Callahan’s Peer-to-Peer Analytics
![Page 66: Trendwatch 3Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/3Q18Trendwatch_Thursday.… · Sponsored by: Data for September 30, 2018 Call Date: November 15, 2018](https://reader033.vdocuments.us/reader033/viewer/2022042300/5eca99b42fcc5c7ee0689905/html5/thumbnails/66.jpg)
Sponsored by:
$89.1 $91.8 $97.8 $105.8 $114.0 $122.6 $131.4 $140.4 $150.5 $163.1
$8.2 $9.4 $9.2$8.4 $7.6
$7.1$7.2
$7.7$8.7
$9.5
10.1%
11.2%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16 3Q17 3Q18
Bill
ion
s
Net Worth and AllowanceData as of 9.30.18
Net Worth Allowance Net Worth Ratio
Source: Callahan’s Peer-to-Peer Analytics
Net worth expands 8.4% year-over-year
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