Peer-to-Peer Financial Performance Analytics for Credit

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Data for March 31, 2019

Call Date: May 16, 2019

2

TrendWatch 1Q 2019The Annual Report for the Industry

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Today’s Lineup

Market Update

Jason Haley, Managing Director, Investment Management Group, ALM First

1Q2019 Credit Union Results

Alix Patterson, Chief Experience Officer, Callahan & Associates

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

Build a Better Member Experience Through Deposit Product Innovation

Erin Hennessy, Chief Innovation and Marketing Officer, United Federal Credit Union

Presented By:Presented By:

ALM FIRST MARKET UPDATE

Callahan Quarterly TrendWatch May 16, 2019

Jason Haley

Managing Director, Investment Management Group

SPEAKER

Jason Haley

Managing Director, Investment

Management Group

Economic Update

12

• The tone in global risk markets turned notably bearish over the last two weeks

– S&P 500 down 3% MTD; high yield credit spreads +40 bps

• U.S./China negotiations appeared to be progressing well, but Chinese officials reportedly backtracked on most core demands of the U.S. in the final hours of negotiation

• Some reports have suggested that President Trump’s recent criticism of Fed policy sparked China’s reversal

– President Trump tweeted on May 5 that tariffs would be increased to 25% on more than $200 billion of Chinese goods starting May 10 because China was moving “too slowly” in the negotiations

– China retaliated with increased tariffs on U.S. products

– Both sides continue to negotiate

• Geopolitical concerns have also weighed on market sentiment in recent days/weeks

Fed Update

• The May 1 FOMC meeting was more dovish than some had

expected

• Several Fed leaders had expressed concern prior to the

meeting of disinflation risk

– Charles Evans (Chicago Fed) suggested the Fed may need to

execute an “insurance cut” to the fed funds rate to combat this

risk

– Fed Chair Powell was mostly dismissive of these concerns

following the FOMC meeting, using the word “transitory” multiple

times when describing the recent softness in core inflation

• The Fed announced another technical adjustment to the IOER

rate, lowering it 5 bps to 2.35%

– Money-market rates have been slow to respond

13

1414

Fed Funds: FOMC Forecast vs. Market Pricing

14

1515

Current Market Themes

15

• Treasury yields are lower across the curve since mid-February

– Yield curve is modestly steeper given market pricing for Fed rate cuts

• Fixed income performance has been strong so far in 2019, boosted by spread tightening across sectors

– ALM First managed portfolios have already achieved annual excess return targets

5/15/2019 2/14/2019 Change

Tenor (%) (%) (bps)

1-Month 2.39 2.41 -0.02

3-Month 2.39 2.42 -0.03

6-Month 2.42 2.50 -0.08

1-Year 2.31 2.52 -0.22

2-Year 2.16 2.49 -0.33

5-Year 2.15 2.47 -0.33

10-Year 2.37 2.65 -0.28

30-Year 2.82 3.00 -0.18

Curves

2yr-5yr -0.02 -0.02 0.01

2yr-10yr 0.21 0.16 0.05

2yr-30yr 0.65 0.50 0.15

5yr-10yr 0.22 0.18 0.04

2.0

2.2

2.4

2.6

2.8

3.0

3.2

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

Treasury Yield Curve

2/14/2019 5/15/2019

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

Fund Name 30 Day Yield*

TCU Ultra-Short Duration Portfolio 2.55TCU Short Duration Portfolio 2.66

*The yields reflect the distribution yields for each Portfolio as of April 30, 2019.

To learn more about how these institutional investment options may benefit your credit union, contact [email protected] or visit

www.trustcu.com

Looking for Investment Options?

mailto:[email protected]

http://www.trustcu.com/

Sponsored by:

Questions?

Sponsored by:

1Q19 Credit Union Results

Sponsored by:

2019 Priorities: What CEOs are Saying

•Mission: Defining, Embracing, Living

•Talent: People Development, Activating Culture, Recruiting/Retention

•Member Experience: Digital Transformation, Reducing Friction, Advisory Roles

•Business Intelligence: Using data to more efficiently target above strategies

•Managing the Business Model: Deposits, Deposits, Deposits

Sponsored by:

Membership grew 20.7% over the past 5 years

98.4 101.1 105.0 109.4 114.1 118.8

2.2% 2.8%

3.8%

4.2% 4.3% 4.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

0

20

40

60

80

100

120

140

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Mill

ion

s

Membership and Annual GrowthData as of 03.31.19

Total Members Annual Growth

Source: Callahan’s Peer-to-Peer Analytics

Sponsored by:

240.4 248.4 258.8 270.4 281.8 294.5

31 30 2927

2825

2.7% 2.9%

3.8%4.0% 4.1%

3.9%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0

50

100

150

200

250

300

350

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Tho

usa

nd

s

FT & PT Employees and Annual Total Employee GrowthData as of 03.31.19

Full-Time Employees Part-Time Employees Total Employee Growth


Workforce shifts to a higher proportion of FT employees

Sponsored by:

Loan portfolio growth slows but remains strong

$661.2 $730.5 $809.1 $895.5 $982.5 $1,061.4

8.9%

10.5% 10.8% 10.7%9.7%

8.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

$0

$200

$400

$600

$800

$1,000

$1,200

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Bill

ion

s

Total Loans and Annual GrowthData as of 03.31.19

Total Loans Outstanding YOY Growth


Sponsored by:

Credit unions competing for deposits in highly competitive market

$956 $997 $1,064 $1,153 $1,218 $1,290

3.7%

4.3%6.7%

8.4%

5.6% 5.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Bill

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Total Share Balances and Annual GrowthData as of 03.31.19

Share Balances YOY Growth


Sponsored by:

Loan growth slows while share growth picks up as 2019 begins

As of 03/31/201912-mo. Growth

1Q1912-mo. Growth

1Q18

Assets $1,525.8B 6.5% 5.8%

Loans $1,061.4B 8.0% 9.7%

Shares $1,289.9B 5.9% 5.6%

Investments $395.8B 1.6% -3.2%

Capital $175.5B 9.9% 6.9%

Members 118.8M 4.2% 4.3%


Sponsored by:

Lending

Sponsored by:

Loan originations fall short of 2018 record level

$74.1 $89.3 $99.6 $113.7 $117.9 $114.1

-10.4%

20.5%

11.6% 14.2%

3.7%

-3.2%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

$0

$20

$40

$60

$80

$100

$120

$140

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

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YTD Loan Originations and Annual GrowthData as of 03.31.19

Total Loan Originations Annual Growth


Sponsored by:

Mortgage originations fall across all segments


$10.7 $18.8 $17.9 $20.7 $19.8 $16.5

$4.0

$4.5 $5.7

$7.0 $7.5

$6.4

$2.7

$2.8 $3.0

$3.4 $3.4

$3.1

$17.5

$26.2 $26.7

$31.1 $30.7

$26.0

$0

$5

$10

$15

$20

$25

$30

$35

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

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YTD Mortgage Originations ($) By TypeData as of 03.31.19

Fixed Balloon ARM

24.7%

11.9%

63.4%

24.4%

11.1%

64.5%

Sponsored by:

Credit unions selling relatively more originations despite modest decrease in aggregate sales to secondary

$17.5 $26.2 $26.7 $31.1 $30.7 $26.0

32.4%

38.6%36.8%

34.8%31.4%

36.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

$0

$5

$10

$15

$20

$25

$30

$35

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Bill

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YTD 1st Mortgage Originations & Secondary Market Sales as % of 1st Orig.Data as of 03.31.19

1st Mort. Orig. Sales to Sec. Mkt. as % of 1st Orig.


Sponsored by:

$8.1$9.7

$12.6

$15.7$14.6

$5.9

$0

$5

$10

$15

$20

$25

$30

$35

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Bill

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Quarterly Loan ChangeData as of 03.31.19

Smallest quarterly loan change in more than 5 years


Sponsored by:

Loan portfolio growth slows but remains strong

$661.2 $730.5 $809.1 $895.5 $982.5 $1,061.4

8.9%

10.5% 10.8% 10.7%9.7%

8.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

$0

$200

$400

$600

$800

$1,000

$1,200

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Bill

ion

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Total Loans and Annual GrowthData as of 03.31.19

Total Loans Outstanding YOY Growth


Sponsored by:

9.7%

9.8%

10.0%

12.1%

5.6%

10.2%

8.0%

7.7%

7.4%

8.6%

8.2%

7.9%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Total

Credit Card

Used Auto

New Auto

Other RE

1st Mtg

Annual Growth in Loans Outstanding Data as of 03.31.19

1Q19

1Q18

Steady growth across all products


Sponsored by:

41.9%

38.8%

10.7%

8.0%

19.9%

19.9%

11.2%

13.1%

6.4%

5.5%

10.0%

14.7%

1Q14

1Q19

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

Total Loans OutstandingData as of 03.31.19

1st Mortgage Other RE Used Auto New Auto Credit Cards Other Loans

Real estate loans make up a smaller portion of the loan portfolio


46.8% 33.0%

31.1%52.6%

Sponsored by:

Total 1st Mortgage Auto Other RE

Indirect Credit Card Member Commercial

0.59% 0.40% 0.53% 0.46%

0.54% 1.26%

0.05% 0.03% 0.01%

0.03% 0.02%


Annual Change in DelinquencyData as of 03.31.19

0.60%0.87%

Asset quality improves across most categories; many segments return to pre-crisis lows

0.02%

Sponsored by:

Charge-offs decrease annually

0.50%0.57%

0.81%

0.59%

1.31%

1.16%

0.30%

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Asset Quality Ratio: Net Charge-Off Ratio + Delinquency Ratio Data as of 03.31.19

Net Charge-Off Ratio Delinquency Ratio Asset Quality Ratio


Sponsored by:

Savings

Sponsored by:

Credit unions competing for deposits in highly competitive market

$956 $997 $1,064 $1,153 $1,218 $1,290

3.7%

4.3%6.7%

8.4%

5.6% 5.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Bill

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Total Share Balances and Annual GrowthData as of 03.31.19

Share Balances YOY Growth


Sponsored by:

Share certificates lead portfolio growth; $38B annual increase 2nd largest of any segment on record

5.6%

6.6%

9.2%

2.8%

-1.0%

6.6%

5.9%

4.0%

6.1%

0.2%

1.7%

18.1%

-4% 1% 6% 11% 16% 21%

Total Shares

Regular Shares & Dep.

Share Drafts

MMA

IRA/Keogh

Share Certificates

12-Mo. Growth in Shares SegmentsData as of 03.31.19

1Q19

1Q18


Sponsored by:

37.7%

37.0%

16.1%

16.1%

21.9%

20.7%

6.4%

6.2%

17.9%

20.0%

1Q18

1Q19

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

Total Shares OutstandingData as of 03.31.19

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

Composition shifting with liquidity pressures


53.2%

53.8%

+$38.5B

Sponsored by:

Despite certificates driving quarterly inflows to record level annual change remains negative


$23

-$16

-$5 -$7

$30

-$21 -$19

-$12

$30

-$26-$24

-$6

$49

-$40

-$30

-$20

-$10

$0

$10

$20

$30

$40

$50

$60

1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19

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Net Liquidity ChangeData as of 03.31.19

Quarterly Annual

* Net liquidity from shares= $ share growth - $ loan growth

Sponsored by:

Loan-to-Share ratio climbs higher with sustained loan growth

69.1%

73.3%76.0%

77.6%

80.7%82.3%

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

Loan-to-Share RatioData as of 03.31.19


Sponsored by:

57.7%

55.4%

7.1%

7.2%

11.4%

7.5%

2.1%

2.7%

17.5%

4.2%

1.4%

1.6%

2.8%

2.6%18.4%

1Q14

1Q19

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

Historical Investment CompositionData as of 03.31.19

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

22.7%


Investment portfolios continue to move to more liquid assets

Build a Better Member Experience

Through Deposit Product Innovation

Erin Hennessy, Chief Innovation and Marketing Officer

United Federal Credit Union

Erin Hennessy, Chief Innovation & Marketing OfficerUnited Federal Credit Union

About United Federal Credit Union

• Headquartered in St.

Joseph, Michigan

• Over $2.8B in assets

• More than 175,000

members

• 650 employees

• Branches in Arkansas,

Indiana, Michigan,

Nevada, North Carolina,

and Ohio

A New Deposit Strategy

In 2017, we simplified and relaunched our checking suite.

There are now only two account types:

✓ Ultra Checking – a high-yield option with a 3% APY on

balances up to $15,000

✓ Rewards Checking – which gives members the ability to

earn 1 point on every $3 spent for qualified purchases

In 2018, two more deposit products were introduced as part

of a larger strategy to benefit members and attract new,

sticky deposits.

Encouraging Additional Savings

Bonus Builder Money

Market, launched in

September 2018, allows

members to add 0.50%

APY to their money market

rate if they have a United

checking account.

Liquid Share Certificate,

relaunched in July 2018,

allows members to make

up to two withdrawals

per month during the

12-month term of the

certificate

Additional Offers & Results

• Members with an Ultra Checking account were also

offered a 0.10% APY rate bonus on monthly share

certificate specials

• Throughout 2018, total open checking accounts grew at

a consistent pace, netting an average of 490 new

accounts per month

• Total checking balances increased by 4.8% in 2018.

• From Sept. to Dec. 2018, the Bonus Builder Money Market

product averaged $6.3 million per month in new

money deposits and 132 new account openings per

month.

Questions

Sponsored by:

Member Impact:

Sponsored by:

Biggest jump in share draft accounts, up 3.7 million

52.2 55.0 58.1 61.8 65.4 69.1

53.0%54.4%

55.3%56.5%

57.3%58.1%

42.0%

44.0%

46.0%

48.0%

50.0%

52.0%

54.0%

56.0%

58.0%

60.0%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Mill

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Share Draft Accounts and Share Draft PenetrationData as of 03.31.19

Total Accounts Share Draft Penetration


Sponsored by:

Credit union value proposition is resonating

Credit Card Real Estate Share Draft Auto

17.5% 4.4%

53.0%

21.2%1Q19

1Q14

Change

16.0% 4.4%

58.1%

16.7%

+1.5% 0.0% +5.1% +4.5%


Penetration RatesData as of 03.31.19

Sponsored by:

Average member balances grew 20% in past 5 years

$6,297 $6,758 $7,191 $7,614 $7,998 $8,395

$9,680 $9,804 $10,070 $10,460 $10,588 $10,752

$15,977 $16,562$17,261

$18,074 $18,586 $19,147

$0

$5,000

$10,000

$15,000

$20,000

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Average Member RelationshipData as of 03.31.19

Loans/Member Shares/Member


Sponsored by:

Revolving consumer loans climbs $4.5B year-over-year

$42.1 $45.2 $48.7 $52.4 $56.9 $61.5

5.2%

5.3%

5.6%5.6%

5.9%

6.1%

4.6%

4.8%

5.0%

5.2%

5.4%

5.6%

5.8%

6.0%

6.2%

$0

$10

$20

$30

$40

$50

$60

$70

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Bill

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Revolving Consumer Loan Balances and CU Market ShareData as of 03.31.19

CU Revolving Consumer Loans Credit Union Market Share

Source: Federal Reserve

Sponsored by:

First mortgage originations drop to four-year low in 1Q19

$17.5 $26.2 $26.7 $31.1 $30.7 $26.0

6.4%

7.5% 7.6%

8.6%9.0%

8.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

$0

$5

$10

$15

$20

$25

$30

$35

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

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First Mortgage Originations & Market ShareData as of 03.31.19

1st Mtg Orig. Market Share

Mortgage Bankers AssociationSource: Callahan’s Peer-to-Peer Analytics

Sponsored by:

Share of auto loans stayed above 18% in the past 3 years

15.0%15.9%

16.6%18.0%

19.8%18.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Auto Market Share

Credit Union Auto Finance Market ShareData as of 03.31.19

Source: Callahan’s Peer-to-Peer Analytics AutoCount Data from Experian Automotive

*

* Several states were delayed/late reporting February/March data

Sponsored by:

The Bottom Line

Sponsored by:

Revenue growth driven by 15.0% gain in interest income

$9.1 $9.6 $10.5 $11.3 $12.8 $14.8

$1.7 $1.7$1.8

$2.0$2.1

$2.1

$1.6 $1.9$2.0

$2.2

$2.8

$2.8

0.0%

6.5%8.2%

8.3%

14.2%11.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

$0

$5

$10

$15

$20

$25

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

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Total Revenue and Annual GrowthData as of 03.31.19

Interest Income Fee Income Other Operating Income YOY Growth


Sponsored by:

Cost of funds is rising faster than loan yields

1.18%

1.79%

2.34%

0.60%

0.68%0.93%

4.86%4.59%

4.76%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Yield on Investments Cost of Funds Yield on Loans

Yield AnalysisData as of 03.31.19


Sponsored by:

Net interest margin and operating expense ratio are almost equal

3.04%3.08% 3.08%

3.04%3.09%

3.12%

2.80% 2.82%2.87%

2.89%

3.03%

3.11%

2.60%

2.70%

2.80%

2.90%

3.00%

3.10%

3.20%

3.30%

3.40%

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Net Interest Margin vs. Operating Expense RatioData as of 03.31.19

Operating Expense Ratio Net Interest Margin

1 bps


24 bps

Sponsored by:

ROA is approaching 1% through the first quarter

0.78% 0.78%0.75% 0.71%

0.90%0.94%

0.50%

0.60%

0.70%

0.80%

0.90%

1.00%

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

ROAData as of 03.31.19


Sponsored by:

Interest rate movements have a clear impact on earnings

As of 03.31.2019 As of 03.31.201812-mo.

Change (bps)

Interest Income/Avg. Assets 3.93% 3.64% +29

Interest Expense/Avg. Assets 0.82% 0.60% +22

Net Interest Margin 3.11% 3.03% +8

Non-Interest Income/Avg. Assets 1.38% 1.43% -5

Non-Interest Expense/Avg. Assets 3.12% 3.09% +3

Provision for Loan Losses 0.43% 0.48% -5

ROA 0.94% 0.90% +4


Sponsored by:

$118.1 $126.8 $135.5 $145.0 $156.1 $170.0

$7.2$7.0

$7.5$8.0

$9.1

$9.510.6% 11.1%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

1Q14 1Q15 1Q16 1Q17 1Q18 1Q19

Bill

ion

s

Net Worth and AllowanceData as of 03.31.19

Net Worth Allowance Net Worth Ratio


Industry net worth ratio climbs to 11.1%

Sponsored by:

1Q19 Recap

PLANNING

studentchoice.org/empowering

FUNDING REPAYING

Documents

Peer-to-Peer Financial Performance Analytics for Credit