Q4 Quarterly Business Credit Review

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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.


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


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



Quarterly Business Credit Review

Presented by Joel Pruis


Small Business Credit Index


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


Region Map

South

West Midwest

Northeast

South

West Midwest

Northeast


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


Days Beyond Terms Trend


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



Bankruptcy Rate Trend


0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.70%

Q1 2013 Q2 2013 Q3 2013 Q4 2013



Top 5 Industries – Delinquency Rate



Bottom 5 Industries – Delinquency Trend



Construction Industry – By Region


5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Q1 2013 Q2 2013 Q3 2013 Q4 2013



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


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


Source: Experian Bank2Business Origination Platform


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



Approval %

All Credit Types

40.00%

50.00%

60.00%

70.00%

80.00%

Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013




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




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



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:



Macro Outlook:Will The Economy Spring Forward in 2014

Cristian deRitisMoody’s Analytics


-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


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


-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


-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.


…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)


…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


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


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…


2013Q4

Sources: CoreLogic, BEA, PPR, Moody’s Analytics

UndervaluedCorrectly valuedOvervaluedSignificantly overvalued

… And Appropriately Valued Most Everywhere


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


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

%


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


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



HOT TOPIC:Did Main Street Sit Out Q4?


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


Source: Experian Moody’s Small Business Credit Index


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



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



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


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


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


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


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


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



QUESTIONS

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Q4 Quarterly Business Credit Review

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Transcript of Q4 Quarterly Business Credit Review