Trendwatch 2Q 2018 - Callahan & Associatesgo.callahan.com/rs/866-SES-086/images/2Q18Trend... ·...

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Data for June 30, 2018

Call Dates: August 22 & 23, 2018

1

Trendwatch 2Q 2018The Annual Report for the Industry

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Today’s Lineup

Market UpdateJason Haley, Managing Director, Investment Management Group, ALM First

2Q 2018 Credit Union Trends & Key IssuesAlix Patterson, Partner, Callahan & Associates

Sam Taft, AVP, Analytics & Business Development, Callahan & Associates

A Business Intelligence Team that Drives ResultsSara Dolan, Chief Financial Officer, Michigan State University Credit Union

Presented By:Presented By:

ALM FIRST MARKET UPDATE

Callahan Quarterly Trendwatch August 22, 2018

Jason Haley

Managing Director, Investment Management Group

Jason HaleyManaging Director, Investment Management Group

Speaker

12

Economic Update

• U.S. dollar strength has sparked volatility in commodities and

emerging markets (EM) in recent weeks

– Turkish financial/economic crisis roiled emerging markets in

early August

– Metals and oil prices sharply lower on EM concerns and China,

which is unusual when global growth is above trend

• U.S. economic data trend has slowed relative to expectations

but remains consistent with solid overall growth

– Citi Surprise Index in negative territory for first time since

October 2017

– Q2 GDP growth above 4% for first time since 2014 and

underlying details were supportive for current quarter growth

– Biggest near-term headwind for growth continues to be potential

for outright trade war

13

Economic Update, cont.

• Fed Chair Jerome Powell will be speaking Friday morning at

the annual Jackson Hole symposium (Monetary Policy in a

Changing Economy)

• Current median FOMC forecast calls for 2 more rate hikes in

2018 and 3 hikes in 2019

– Markets priced for 2018 hikes, but priced for just over 1 hike in

2019

– Historic tendency for markets to underprice Fed hikes on the

back end of a tightening cycle

• Regarding future Fed communication/decisions, market

participants are more focused on Fed balance sheet

reduction, future demand for bank reserves in the context of

HQLA requirements, and the relationship between IOER and

the Fed’s target fed funds range

14

1515

Current Market Themes

15

• Curve flattening continues to be a major theme for 2018,

which is typical of a Fed tightening cycle

– Term premiums remain depressed amid central bank buying

• Interest rate volatility remains low, and spread widening has

slowed in recent months, both of which have been positive for

fixed-income performance (spread sectors relative to rates)

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

1M 3M 6M 1Y 2Y 3Y 5Y 7Y 10Y 30Y

Treasury Yield Curve

5/16/2018 8/21/2018

8/21/2018 5/16/2018 Change

Tenor (%) (%) (bps)

3-Months 2.05 1.90 0.16

6-Months 2.23 2.08 0.15

1-Year 2.43 2.28 0.15

2-Year 2.60 2.59 0.02

5-Year 2.73 2.94 -0.21

10-Year 2.85 3.10 -0.25

30-Year 3.01 3.22 -0.21

Curves

2yr-5yr 0.12 0.35 -0.23

2yr-10yr 0.25 0.51 -0.27

2yr-30yr 0.41 0.63 -0.22

5yr-10yr 0.12 0.16 -0.04

Depository Performance Amid Rising Rates

16

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4KBW Bank Index

Price to Tangible Book Value

Source: Bloomberg

2911 Turtle Creek Blvd.

Suite 500

Dallas, Texas 75219

Phone: 800.752.4628

Fax: 214.987.1052

www.almfirst.com


Suite 500

Dallas, Texas 75219

Phone: 800.752.4628

Fax: 214.987.1052

www.almfirst.com


Suite 500

Dallas, Texas 75219

Phone: 800.752.4628

Fax: 214.987.1052

www.almfirst.com


Suite 500

Dallas, Texas 75219

Phone: 800.752.4628

Fax: 214.987.1052

www.almfirst.com


Suite 500

Dallas, Texas 75219

Phone: 800.752.4628

Fax: 214.987.1052

www.almfirst.com

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Banks start to pay their deposits

Source: Credit Suisse & WSJ

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33.9%

38.4%

13.1%

15.8%

23.0%

21.5%

8.7%

6.3%

21.3%

18.0%

2Q13

2Q18

0% 20% 40% 60% 80% 100%

Total Shares OutstandingData as of 6.30.18

Regular Shares & Dep. Share Drafts MMA IRA/KEOGH Share Certificates

Core deposits make up 75.7% of share portfolio


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Total borrowings more than doubles over the past 5 years

$26.7 $34.8 $44.1 $47.3 $48.3 $53.9

2.5%

3.1%

3.7% 3.7%3.5%

3.7%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2Q13 2Q14 2Q15 2Q16 2Q17 2Q18

Bill

ion

s

Total Borrowings and Borrowings/AssetsData as of 6.30.18

Total Borrowings Borrowings/Assets


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Participation sales are beginning to slow, but still growing

$1.7 $2.3 $3.4 $4.4 $4.7 $5.1

-9.3%

33.8%

50.4%

26.9%

8.2% 8.0%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

2Q13 2Q14 2Q15 2Q16 2Q17 2Q18

Bill

ion

s

Total Participations Sold and Annual GrowthData as of 6.30.18


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Loans top $1T despite modest slowing

$621.3 $682.0 $754.1 $833.3 $923.2 $1,013.5

5.4%

9.8%10.6% 10.5%

10.8%

9.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

$0

$200

$400

$600

$800

$1,000

$1,200

2Q13 2Q14 2Q15 2Q16 2Q17 2Q18

Bill

ion

s

Total Loans and Annual GrowthData as of 6.30.18


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$13.9

$20.8$23.5 $24.3

$27.8

$31.0

$0

$5

$10

$15

$20

$25

$30

$35

2Q13 2Q14 2Q15 2Q16 2Q17 2Q18

Bill

ion

s

Quarterly Loan ChangeData as of 6.30.18

$31B in loans added to the balance sheet in the last quarter


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41.0%

8.4%

21.2%

13.9%

5.8%

9.7%

Credit Union Loan PortfolioData as of 6.30.18

1st Mortgage

Other RE

Used Auto

New Auto

Credit Cards

Other

New auto and 1st mortgage drive loan growth


=

=

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41.5%

41.0%

11.6%

8.4%

30.5%

35.1%

6.4%

5.8%

9.8%

9.7%

2Q13

2Q18

0% 20% 40% 60% 80% 100%

Total Loans OutstandingData as of 6.30.18

1st Mortgage Other RE Total Auto Credit Cards Other Loans

Auto concentration grow to over 1/3 of portfolio


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10.8%

8.1%

11.9%

16.3%

6.0%

10.3%

9.8%

9.1%

10.0%

11.8%

5.2%

10.6%

0.0% 5.0% 10.0% 15.0% 20.0%

Total

Credit Card

Used Auto

New Auto

Other RE

1st Mtg

Annual Growth in Loans Outstanding Data as of 6.30.18

2Q2018

2Q2017

Credit card and 1st mortgage loan growth accelerates


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Banks face consumer lending challenges

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59.2%

6.4%

9.0%

2.7%

18.3%

1.5% 2.9%

Credit Union Investment PortfolioData as of 6.30.18

US Govt., Fed. Agency, andOther Securities

Corporate CUs (incl. Cash)

Banks and S&Ls

Cash on Hand

Cash at FIs

Cash Equiv.

Other Inv & Insurance

Agencies and Fed Funds account for 77.5% of the portfolio


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45.8%

59.3%

59.2%

28.6%

6.9%

6.4%

13.2%

12.1%

9.0%

2.7%

2.0%

2.7%

4.2%

15.4%

18.3%

2.7%

1.4%

1.5%

2.8%

2.9%

2.9%

2Q09

2Q13

2Q18

0% 20% 40% 60% 80% 100%

Historical Investment CompositionData as of 6.30.18

US Govt., Fed. Agency, and Other Sec. Corporate CUs (incl. Cash)Banks and S&Ls Cash on HandCash at FIs Cash Equiv.Other Inv & Insurance

Portfolios remain short


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