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©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks ofExperian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners.No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public.
Q4 Quarterly Business Credit Review WebinarMarch 18, 2014
Audio & Visual for today’s webinar will be delivered through your computer. No dial-in number for this event.
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Our Speakers
Joel PruisSr. Business ConsultantExperian Global Consulting Practice
• Senior Business Consultant dedicated to delivering programs to his clients that increase productivity and profitability, provide financial services organizations with tools to gain a competitive edge.
• More than 25 years of experience in origination and portfolio management for small business and commercial credit
• Bachelors in Accounting, MBA from Indiana Wesleyan University
5©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
Our Speakers
Cristian deRitis, PhDSr. Director
Moody’s Analytics• Manages a team of economists focused on consumer credit modeling and analysis.• Provides regular commentary to clients and the media on the state of consumer credit
markets and small businesses. • has an interest in housing markets and housing policy and has written extensively on the
future of the US housing finance system.• He received a Ph.D. and M.A. in Economics from Johns Hopkins University
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©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks ofExperian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners.No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public.
Quarterly Business Credit Review
Presented by Joel Pruis
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Small Business Credit Index
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More Credit – Slight Increase in Delinquency
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
-10
-5
0
5
10
15
11 12 13
Outstanding credit, % change yr ago (L)
Sources: Experian, Moody’s Analytics
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Region Map
South
West Midwest
Northeast
South
West Midwest
Northeast
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Delinquency Trends
5.00%
7.00%
9.00%
11.00%
13.00%
15.00%
17.00%
19.00%
21.00%
Q1 2013 Q2 2013 Q3 2013 Q4 2013
WestSouthMidwestNortheastTotal
Source: Experian Metro Business Pulse
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Days Beyond Terms Trend
Source: Experian Metro Business Pulse
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
Q1 2013 Q2 2013 Q3 2013 Q4 2013
WestSouthMidwestNortheastTotal
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Bankruptcy Rate Trend
Source: Experian Metro Business Pulse
0.50%
0.70%
0.90%
1.10%
1.30%
1.50%
1.70%
Q1 2013 Q2 2013 Q3 2013 Q4 2013
WestSouthMidwestNortheastTotal
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Top 5 Industries – Delinquency Rate
Source: Experian Metro Business Pulse
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Bottom 5 Industries – Delinquency Trend
Source: Experian Metro Business Pulse
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Construction Industry – By Region
Source: Experian Metro Business Pulse
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Q1 2013 Q2 2013 Q3 2013 Q4 2013
WestSouthMidwestNortheastTotal
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105 Financial Institutions using Experian’s Bank2Business platform to origination small business credit.
Asset Size of the Financial Institutions is $50 Billion or less.
Only new loan requests (excludes renewals of existing credit)
Small Business Application Data
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App Volume Index (# of Apps)All Credit Types
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
Inde
x to
Q4
2012
WestSouthMidwestNortheastTotal
Source: Experian Bank2Business Origination Platform
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App Volume Index ($ of Apps)
All Credit Types
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
Inde
xed
to Q
4 20
12 $ West
SouthMidwestNortheastTotal
Source: Experian Bank2Business Origination Platform
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Approval %
All Credit Types
40.00%
50.00%
60.00%
70.00%
80.00%
Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
WestSouthMidwestNortheastTotal
Source: Experian Bank2Business Origination Platform
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Average Request Size
All Credit Types
75,000
100,000
125,000
150,000
175,000
200,000
225,000
250,000
Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
WestSouthMidwestNortheastTotal
Source: Experian Bank2Business Origination Platform
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Approval vs. Delinquency
5.00%
7.00%
9.00%
11.00%
13.00%
15.00%
17.00%
19.00%
21.00%
Q1 2013 Q2 2013 Q3 2013 Q4 2013
Delinquency Trend
West
South
Midwest
Northeast
Total
40.00%
50.00%
60.00%
70.00%
80.00%
Q42012
Q12013
Q22013
Q32013
Q42013
Approval %All Credit Types
West
South
Midwest
Northeast
Total
Source: Experian Bank2Business Origination Platform
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Pockets of opportunity
► Insurance in the Northeast
► Communications in the Midwest
Determine when to “call it”
Watch the early delinquency
► 30/60 days
Key Take-Away’s:
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©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks ofExperian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners.No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public.
Macro Outlook:Will The Economy Spring Forward in 2014
Cristian deRitisMoody’s Analytics
26©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
-250
-200
-150
-100
-50
0
50
100
150
03 04 05 6 07 08 09 10 11 12 13 14
Winter Weather Weighing on Economy
Heating degree days, deviation from prior 5-year average
Sources: NOAA, Moody’s Analytics
Colder
Warmer
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0
1
2
3
4
5
10 11 12 13 14F 15F 16F
SpendingGDP
Outlook Still for Faster Growth…
Real GDP and spending, annualized % change
Sources: BEA, Moody’s Analytics
28©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
-2
-1
0
1
2
3
'08 '09 '10 '11 '12 '13 14
Sequester ObamacareBush taxes over $400k Payroll tax & UIRecovery Act Other SpendingCash for Clunkers Tax rebate checksTotal Fiscal Policy
…As Effects From Fiscal Austerity Recede
Source: Moody’s Analytics
Federal discretionary fiscal policy contribution to real GDP growth, %
Stimulus
Austerity
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-30
-20
-10
0
10
20
30
40
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Businesses Get Their Groove Back
Business confidence diffusion index
Source: Moody’s Analytics
The difference between the % of responses to the survey that are positive and the % that are negative.
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…Households Have De-Levered and Locked-In…
15
20
25
30
35
10.010.511.011.512.012.513.013.514.014.5
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
%
Sources: Federal Reserve, BEA, Moody’s Analytics
Debt service burden (L)
Adjustable share of Liabilities (R)
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…And Wealth Is Rising
-4
-3
-2
-1
0
1
2
3
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Annual change in housing equity, $ tril
Sources: Federal Reserve, Moody’s Analytics
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Household Pent-Up Demand Remains Large…
Sources: BEA, Moody’s Analytics
Real spending, $ tril
9.0
9.5
10.0
10.5
11.0
11.5
12.0
05 06 07 08 09 10 11 12 13
ActualPrerecession trend: 2.5% annually2% growth
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5,500
6,500
7,500
8,500
9,500
10,500
11,500
90 92 94 96 98 00 02 04 06 08 10 12
Trend Vacancy
Sources: Census, Moody’s Analytics
Vacant homes for sale, for rent and held off market, ths
Housing Will Soon Be Undersupplied…
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2013Q4
Sources: CoreLogic, BEA, PPR, Moody’s Analytics
UndervaluedCorrectly valuedOvervaluedSignificantly overvalued
… And Appropriately Valued Most Everywhere
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Downside Risk: Wages Remain a Restraint
3-mo MA, % change yr ago
-6
-4
-2
0
2
4
6
8
10
-5
-4
-3
-2
-1
0
1
2
3
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Employment (L)Wage income (R)
Sources: BEA, BLS, Moody’s Analytics
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0
2
4
6
8
10
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Federal Funds Rate10-Year T-yieldUnemployment Rate
Downside Risk: Graceful Exit By the Fed
Sources: Treasury, BLS, Moody’s Analytics
%
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Upside Risk: U.S.’s Energy Advantage
0
50
100
150
200
250
300
0 5 10 15 20
Sources: Country sources, Moody’s Analytics
Natural gas price, $ mmbtu
Industrial electricity prices, $ Mwh
U.S.
China
Italy
Korea
Japan
India
Germany
U.K.France
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The weather impacted the economy in the first quarter but the effect is temporary.
Households and businesses are well positioned for growth this year.
The drag from fiscal austerity is fading.
Housing construction will be an engine for broader economic growth in 2014 and 2015
Downside risks could slow growth but are unlikely to trigger a recession
Key Takeaways
39©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks ofExperian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners.No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public.
HOT TOPIC:Did Main Street Sit Out Q4?
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Retail Delinquency Trend
5.00%
7.00%
9.00%
11.00%
13.00%
15.00%
17.00%
19.00%
21.00%
23.00%
Q1 2013 Q2 2013 Q3 2013 Q4 2013
WestSouthMidwestNortheastTotal
Source: Experian Moody’s Small Business Credit Index
41©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
Delinquency is Middle of the Road
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Q1 2013 Q2 2013 Q3 2013 Q4 2013
ConstructionHealth ServicesRetail Trade
Source: Experian Moody’s Small Business Credit Index
42©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
But Overall Risk Score is Weak…
46.00
48.00
50.00
52.00
54.00
56.00
58.00
60.00
Q1 2013 Q2 2013 Q3 2013 Q4 2013
Retail TradeConstructionHealth Services
Source: Experian Moody’s Small Business Credit Index
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Winter Weather Hits Retail Hard
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
Jan 13 Apr 13 Jul 13 Oct 13 Jan 14
% change (L)% change yr ago (R)
Retail sales and food services
Sources: Census Bureau, Moody’s Analytics
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Broad Deceleration in Sales Across Segments
-3 -2 -1 0 1 2
Autos/partsFurn./homeElec./appl.
HobbyBars/rest.
ClothingGen. merch.
OnlineBldg. materials
Food/bev.Gas stations Diff in Dec and Jan from
Jan to Nov 2013 avg, ppt
Sources: Census Bureau, Moody’s Analytics
% change in retail sales and food services by segment
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Retail Still Has Some Catching Up to Do
90
92
94
96
98
100
102
07 08 09 10 11 12 13 14
Total ex retailRetail
Payroll employment, prerecession peak=100
Sources: BLS, Moody’s Analytics
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Retail Toward the Smaller End of the Spectrum
0 10 20 30 40 50
Real estateAgriculture
ConstructionProf./scien./tech.
Arts/ent.Wholesale
RetailAccom./food
Trans./warehousingFinance
HealthcareAdministrative
MiningEducation
ManufacturingInformation
Avg number of workers per firm by industry in 2011
Sources: Census Bureau: Statistics of U.S. Businesses, Moody’s Analytics
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Revenues Tell a Similar Story
90
95
100
105
110
115
120
07 08 09 10 11 12 13 14
TotalRetail
Intuit Small Business Revenue Index, rebased to Jan 2007=100
Measures firms with <20 workers
Sources: BLS, Moody’s Analytics
48©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
Overall risk is supporting higher level of “bads” over the next 12 months (3rd lowest for last 3 quarters)
Caution with existing 30/60 day delinquencies (may be the next 90 day delinquency)
Trade creditors – Monitor new orders (or lack of new orders)
Financial Institutions – Monitor deposits/line utilization
Winter weather hit the retail sector especially hard
Small retailers are still working to recover the ground they lost during the recession
A recovery in home construction will pull up retailers of all sizes
Key take away
Joel Pruis Cris deRitis
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©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks ofExperian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners.No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public.
QUESTIONS
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Essential insight serving global financial markets
www.moodysanalytics.com
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