Credit Union Trends CUNA Management School – 2nd Year July 22th, 2015 • Madison, Wisconsin Mike Schenk Vice President, Economics & Statistics Credit Union National Association Telephone: 608-231-4228 Facsimile: 608-231-4924 E-Mail: mschenk@cuna.com

Credit Union Trends Very strong membership growth High and increasing loan growth Low savings growth Vastly improved asset quality Lower earnings (with low and declining interest margins) Tremendous variation

Very Strong Membership Growth (Source: NCUA and CUNA)

High & Increasing Loan Growth (Source: NCUA and CUNA)

Broad-Based Loan Increases (Source: NCUA and CUNA)

Light Vehicle Sales (Cars + Light Trucks. Source: BEA) 18.3 Million

Low Savings Growth (Source: NCUA and CUNA)

Three Key Risks Credit Risk – likelihood members don’t pay their loans when they promised to do so. Interest Rate Risk – likelihood earnings (or capital) changes when market interest rates change. Liquidity Risk – likelihood you won’t be able to pay creditors (i.e., depositors or others) when you need to do so.

Liquidity (Total Loans/Total Savings. Source: NCUA and CUNA)

Asset Quality: Delinquency (Percent of Total Loans Asset Quality: Delinquency (Percent of Total Loans. Source: NCUA and CUNA)

Asset Quality: Net Chargeoffs (Percent of Average Loans Asset Quality: Net Chargeoffs (Percent of Average Loans. Source: NCUA and CUNA)

Interest Rate Risk (Net Long Term Assets as a % of Total Assets) Real estate loans that do not reprice, refinance or mature within 5 years; Member business loans; Investments that mature in more than 3 years; NCUSIF deposit; Land and building; Other fixed assets

Interest Rate Risk (Net Long Term Assets as a % of Total Assets Interest Rate Risk (Net Long Term Assets as a % of Total Assets. Source: NCUA and CUNA) Real estate loans that do not reprice, refinance or mature within 5 years; Member business loans; Investments that mature in more than 3 years; NCUSIF deposit; Land and building; Other fixed assets

High Earnings (Net Income as a Percent of Average Assets High Earnings (Net Income as a Percent of Average Assets. Source: NCUA and CUNA)

US CU Earnings Performance (With Stabilization Expense - % of Average Assets) Source: NCUA and CUNA    First Quarter ’15  2014 Basis Point Change Asset Yield 3.33% 3.36% -3 - Int./Div. Cost 0.51% 0.54% = Net Int. Margin 2.82% 2.83% -1 + Fee/Other Inc. 1.31% 1.34% - Operating Exp 3.08% 3.10% -2 - Loss Provisions 0.28% NC = Net Inc. (ROA) 0.78% 0.80% 10-Year Treasury Average 1.97% 2.54% -0.57% Federal Funds Rate Average 0.11% 0.09% +0.02% Difference 1.86% 2.45% -0.59%

Net Interest Margin & Operating Expenses (Basis Points of Average Assets. Source: NCUA and CUNA)

Non-Interest Income (Basis Points of Average Assets Non-Interest Income (Basis Points of Average Assets. Source: NCUA and CUNA)

Market Interest Rates & CU ROA Source: BLS.

Credit Union Credit Quality Trends (As a % of Loans Credit Union Credit Quality Trends (As a % of Loans. Source: NCUA and CUNA)

CU Net Worth/Assets (Source: NCUA and CUNA)

4. Mergers/Consolidation Consolidation: a long-term trend Losing roughly one CU per business day NOT failures Trends are similar in banking industry Why? Opportunities abound

Number of US CUs (Source: NCUA and CUNA)

Change in Number of U.S. CUs (Source: NCUA and CUNA)

Average Annual Change in Number of U. S Average Annual Change in Number of U.S. CUs By Decade (Source: NCUA and CUNA)

Average Annual Percentage Change in Number of U. S Average Annual Percentage Change in Number of U.S. CUs By Decade (Source: NCUA and CUNA)

WHY? Compliance and regulatory burden Continuity Collaboration Capital/Competition

Size Matters (Source: NCUA and CUNA)

Collaboration Anyone?

Competitive Landscape Larger, more aggressive & gaining market share Banker attacks continue Focus on service to low income Going after individual institutions Value proposition and strategy more important than ever Consumer perspective Shocks/disruptive life events Basic literacy Retirement Education

U.S. Bank and Credit Union Size Comparisons Year-End 2014 Banks Credit Unions Total industry assets JP Morgan Chase total assets Bank of America total assets Wells Fargo Bank total assets Citibank total assets $15.6 trillion $2.1 trillion $1.6 trillion $1.5 trillion $1.4 trillion $1.1 trillion Average institution asset size Median institution asset size $2.3 billion $ 181 million $173 million $25 million % of institutions with $25 million or less in total assets 3% 50% % of institutions with $100 million or more in total assets 71% 24% Sources: FDIC, NCUA, CUNA.

Credit Unions (1992 market share = 5.6%; 2014 market share = 6.7%))

$7.1 Billion

$97.1 billion over nine years!

WPCU also does a member-level “report card” showing what members save – and what they could save if they did more business with the CU….

WPCU uses the information on billboards & in full-page newspaper ads…