1. The Economy and Iowa Credit Unions
February 18, 2013
Bill Hampel, Chief Economist
Credit Union National Association

2. Agenda The economic outlook through 2014.
An unusual interest rate forecast.
Credit union finance.

3. Economic Summary In the fifth year of recovery.
Unemployment still lagging.
Inflation nowhere in sight.
Prospects improving for a sustained recovery: escape velocity.
External and political risks much reduced.

4. Gross Domestic Product Quarterly Changes at Annual Rates, Real
2014
Forecast
2001 Recession

5. Household Finances But still room for further improvement: Recovering:
Saving positive again
Debt burden falling
Stock market recovered
But still room for further improvement:
Debt burden still relatively high
Home prices rising, but still off peak
Improving ability to spend, lagging willingness
Demand backlogs building

6. Household Debt Outstanding To Annual Disposable Income
99%
Consumer

7. US Home Prices S&P/Case-Schiller National Index

8. S&P 500 Monthly Averages

9. Non-Farm Payrolls Monthly Changes SA

10. Unemployment Rates and Recessions Percent of the Labor Force

11. Consumer Confidence Conference Board
Jan: 80.7

12. Consumer Price Inflation 1970 to Present, Annual Rates
12 Months to Dec
Top Line = 1.5%
Core = 1.7%

13. Interest Rate Outlook

14. Interest Rates 1988 to Present

15. Interest Rates 1988 to Present

16. The Fed’s Monetary Policy
Was clear, but ?
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” began in December, was to end around time unemployment rate reached 7%.
Likely $10 billion more each FOMC meeting.

17. “Real” 10 Year Treasury Yield Current Yield Minus Trailing One Year Core CPI

18. Treasury Yield Curves

19. Yield Curve Change since April
Basis Points

20. Credit Union Outlook Through 2014
Moderate savings and asset growth
Low interest rates
Strengthening loan growth
Household de-leveraging is moderating
Improving confidence, building backlogs
Loan delinquencies and losses about back to normal
Modest outlook for net income
See below
Rising net worth ratios

21. Credit Union Loan Growth Annual Percent Change

22. Credit Union Delinquency Dollars Delinquent as Percent of Total Portfolio

23. Net Loan Charge-0ffs Total Portfolio

24. Credit Union Savings Growth Annualized Percent Change

25. Credit Union Net Income To Average Assets

26. Net Capital to Assets

27. 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 LONG-TERM RISK
Debit interchange revenue

29. 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

30. Corporate Stabilization Assessments Basis Points of Insured Shares?

31. Corporate Stabilization Assessments Basis Points of Insured Shares!

32. Corporate Stabilization Fund
July 2010
2011 Q2
2011 Q4
2012 Q2
2012 Q4
2013 Q2
2013 Q3
Est. Total Loss
$15.0
$13
$13.3
$13.1
$12.5
$11.1
$9.3
Lost Corp Cap
$5.6
Assessments
$1.3
$3.3
$4.1
$4.8
Total Paid
$6.9
$8.9
$9.7
$10.4
Remains to Pay
$8.1
$4.4
$3.4
$2.8
$0.7
-$1.1

33. Corporate Stabilization Fund
July 2010
2011 Q2
2011 Q4
2012 Q2
2012 Q4
2013 Q2
2013 Q3
Est. Total Loss
$15.0
$13
$13.3
$13.1
$12.5
$11.1
$9.3
Lost Corp Cap
$5.6
Assessments
$1.3
$3.3
$4.1
$4.8
Total Paid
$6.9
$8.9
$9.7
$10.4
Remains to Pay
$8.1
$4.4
$3.4
$2.8
$0.7
-$1.1
A negative assessment is a rebate, eventually.

34. 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

36. 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

37. Interest Rates 1988 to Present