Managing in Turbulent Economic Times

1
Managing in Turbulent Economic Times

• 2003 CUNA Future Forum
• September 30, 2003
• Bill Hampel, Chief Economist
• Credit Union National Association
• bhampel_at_cuna.coop

2
Table of Contents

• Economic Outlook
• Credit Union Overview
• Loans, Savings, Earnings, Capital
• In Depth Discussions
• Mortgage Market
• Household Savings Market
• Net Income and Net Worth Management

3
ECONOMIC OUTLOOKThrough 2004

• Mild Recovery Gathers Momentum (80)
• Inflation Under Control
• Short Rates to Eventually, Gradually Rise
• Yield Curve Flattens, Remains Positive
• Risks of Double Dip (20)
• Geopolitics
• Wealth Effects?
• Weak Dollar
• Consumer and Business Confidence
• Deflation Extremely Unlikely

4
The Recession
Sept 11
Source Department of Commerce
5
August 6.1
6
Non-Farm Payrolls Monthly Changes SA
Latest August 2003
Source Federal Reserve Board
7
Consumer Confidence1980 to Present
Latest August
Source Conference Board
8
Annual Percentage Change
Twelve Months to August Core Rate 1.3
9
Latest 9/2003
10
1
2
3
4
5
6
7
8
9
10
11
(No Transcript)
12
Outlook for Credit Unions
2000

• Loans
• Savings
• Liquidity
• Earnings
• Capital

13
Outlook for Credit Unions
2000 2001

• Loans
• Savings
• Liquidity
• Earnings
• Capital

14
Outlook for Credit Unions 2002/
2000 2001 2003

• Loans
• Savings
• Liquidity
• Earnings
• Capital

15
Outlook for Credit Unions
2002/ 2000 2001 2003
2004

• Loans
• Savings
• Liquidity
• Earnings
• Capital

16
(No Transcript)
17
Credit Union Loan GrowthAnnualized Percent Growth
Percent Change, NSA
2004
Next 12 Months
Year To Date

Source CUNA Economics and Statistics
18
CU Loan Delinquency Rates1970 to 2003
Percent
Latest August 2003
Source CUNA Economics and Statistics
19
Net Loan Chargeoffs(Total Portfolio)
Percent of Outstandings
Source NCUA, CUNA Economics and Statistics
20
(No Transcript)
21
First Mortgage Originations and Sales
U.S. Credit Unions
80
67.7
70
60
47.4
50
Billions
40
31.9
28.4
30
27.3
20.6
19.8
17.7
20
16.7
16.9
15.7
13.5
11.0
10.1
9.2
7.6
10
7.3
7.0
6.2
6.0
4.6
3.7
3.8
3.8
3.2
1.6
0
90
91
92
93
94
95
96
97
98
99
00
01
02
First Mortgage Originations
First Mortgage Sales
22
First Mortgages to AssetsYear End Outstandings
23
(No Transcript)
24
Fixed First Mortgages vs Capital to Assets
25
Interest Rates and Refinancing 1990 to the Present
10 Yr Treasury Rate Left Scale
Refi Right Scale
Sources Federal Reserve, Mortgage Bankers Assoc
26
Outlook for Mortgage Lending

• Rest of 2003
• Mortgage Rates Sharply off Historic Lows
• Dwindling stock of eligible mortgages outstanding
• Refinance volume tapers off
• 2004
• Refi volume cut back sharply
• Game turns to purchase money loans

27
Future ImplicationsRest of the Decade

• Much less refi volume
• Rates at or above recent levels
• Reduced fee and other income
• AEM (aka ALM)
• Much, much slower repayment speeds

28
Future Strategies

• Seeming contradiction
• Less overall mortgage demand
• Market share more important
• More secondary market sales
• ALM implications of reduced refis

29
Another Cause for Concern

• Is there a housing price bubble??
• There are some ominous signs
• It varies by location and market
• Deflating the bubble more likely to be a fizzle
  than a burst, in most cases

30
Where Were the Bubbles?Annual Home Price
IncreasesNominal
31
Late 1970s, and Late 1980sAnnual Home Price
IncreasesInflation Adjusted
Recessions
Recession
Recession
32
HOUSEHOLD SAVINGS MARKETMonthly Changes NSA
Billions
Latest August 2003
Source Federal Reserve Board
33
Credit Union Savings GrowthAnnual Percent Growth
Percent Change
Next 12 Month Estimates
YTD to August
Source CUNA Economics and Statistics
34
(No Transcript)
35
Cost of Funds Changes
36
90 Day CP less 40 bp
37
Loan-To-Savings Ratio
Percent
Year End 2003
Latest August 2003
Source CUNA Economics and Statistics
38
Net Income to Average Assets
Next 18 Months

Source NCUA, CUNA Economics and Statistics
39
Net Income to Average Assets
Next 18 YEARS

Source NCUA, CUNA Economics and Statistics
40
Net Capital to Assets
Percent
Source CUNA Economics and Statistics
41
RAPID GROWTH AND PCACapital Ratios after 5
years, beginning at 10.9
42
PCA, GROWTH AND WELL CAPITALIZED CUsCapital
ratios after 5 years, annual net income of 100 bp
43
Managing in Turbulent Economic Times

• 2003 CUNA Future Forum
• September 30, 2003
• Bill Hampel, Chief Economist
• Credit Union National Association
• bhampel_at_cuna.coop