Trendwatch 3Q 2018 - Callahan &...

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Data for September 30, 2018

Call Date: November 15, 2018

1

Trendwatch 3Q 2018The Annual Report for the Industry

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Today’s Lineup

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

3Q 2018 Credit Union Trends & Key IssuesJon Jeffreys, Managing Partner, Callahan & Associates

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

Thanking Members Through Black Friday SpecialsDan Clarke, Chief Operating Officer, Service Credit Union

Presented By:Presented By:Presented By:Presented By

ALM FIRST MARKET UPDATE

Callahan Quarterly Trendwatch November 15, 2018

Jason Haley

Managing Director, Investment Management Group

Jason HaleyManaging Director, Investment Management Group

Speaker

11

Economic Update

• October was a tough month for most financial assets

– S&P 500 -6.8%, Hang Seng -10%, Bloomberg/Barclays U.S.

Aggregate Index (Fixed Income) -0.79%

– Macro risks (trade, Italian fiscal woes, hawkish Fed policy, higher

interest rates, etc.) still driving activity, but investors have also

been concerned that corporate earnings growth has peaked

– Trump & China’s Xi have made constructive statements with

regards to trade negotiations in recent days

• Economic data trend has been solid

– Initial estimate of Q3 GDP growth was 20 bps above

expectations at 3.5% q/q

– Included robust personal & government consumption readings

– Inventories added 2 points (most since 2015), and import growth

was strong (potential frontloading of orders ahead of tariffs)

– October wage growth +3.1% y/y12

131313

Inflation Pressures Emerging

13

• Consumer prices have gradually risen the low end of the

Fed’s target (2%)

• A consistent theme from Q3 earnings seasons was a

discussion of upward cost pressures

• Higher costs included wages, transportation, input costs,

tariffs, etc.

• Kellogg CEO Steve Cahillane: “We think 2019 will be more

inflationary then we have seen historically since the

recession.”

• Clorox & Coca-Cola recently announced price increases for

certain products, & airlines are expected to hike fares as well

• Will companies be able to pass through cost increases? Will it

cause the Fed to be more aggressive in policy tightening?

Accommodative, Neutral, or Restrictive?

14

Date Speaker Comments

10/1 Rosengren (Boston)

My preference for a strategy…allows a continued, but gradual pace of monetary

tightening. The median path of interest rate projections…implies interest rates

gradually rising to become mildly restrictive.

10/3 Evans (Chicago)

I am more comfortable with the inflation outlook today than I have been for the past

several years… I'm looking for policy to move gradually to a mildly, modestly restrictive

stance because the outlook is good.

10/3 Powell (Chair)

Interest rates are still accommodative, but we're gradually moving to a place where

they'll be neutral -- not that they'll be restraining the economy. We may go past neutral.

But we're a long way from neutral at this point, probably.

10/5 Williams (Governor)

If you look at my colleagues from our recent estimates, people put that at about 3

percent for the short-term interest rate. We are just a little above 2 percent for the fed

funds target, so we have a ways to go to get to some idea of what people think of as

neutral. We don't really know where that is.

Source: J.P. Morgan

151515

Fed Funds – FOMC Projections & Market Pricing

15

2911 Turtle Creek Blvd.

Suite 500

Dallas, Texas 75219

Phone: 800.752.4628

Fax: 214.987.1052

www.almfirst.com

2911 Turtle Creek Blvd.

Suite 500

Dallas, Texas 75219

Phone: 800.752.4628

Fax: 214.987.1052

www.almfirst.com

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• How your credit union's liquidity position stacks up to your peers?

• How the institution's investment portfolio composition and term structure compare?

• What the portfolio's duration position implies for future interest rate movements?

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Savings & Borrowing

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Share growth slows for the second consecutive year

$918 $951 $1,005 $1,092 $1,165 $1,225

6.1%3.6%

5.7%

8.6%

6.7%

5.2%

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

3Q13 3Q14 3Q15 3Q16 3Q17 3Q18

Bill

ion

s

Total Share Balances and Annual GrowthData as of 9.30.18


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-$3.7-$1.3

$5.7

$19.1

$5.2 $2.8

-$10

$0

$10

$20

$30

$40

$50

3Q13 3Q14 3Q15 3Q16 3Q17 3Q18

Bill

ion

s

Quarterly Share ChangeData as of 9.30.18

3Q net share growth shrinks as consumer confidence remains strong


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Loan growth has outpaced share growth for 22 consecutive quarters

69.7%

74.0%

77.5%78.5%

81.3%

84.8%

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

3Q13 3Q14 3Q15 3Q16 3Q17 3Q18

Loan-to-Share RatioData as of 9.30.18


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Net liquidity falls $31.5 billion since last September


-$19

$6

$23

-$16

-$5-$7

$30

-$21-$19

-$12

$30

-$26-$23

-$40

-$30

-$20

-$10

$0

$10

$20

$30

$40

3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18

Bill

ion

s

Net Liquidity ChangeData as of 9.30.18

Quarterly Annual

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

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33.9%

37.5%

12.9%

15.7%

23.2%

21.6%

8.7%

6.4%

21.2%

18.8%

3Q13

3Q18

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

Total Shares OutstandingData as of 9.30.18

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

Core deposits make up 74.8% of share portfolio


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Certificates are also the only deposit product to accelerate year-over-year

6.7%

8.1%

9.5%

5.8%

-0.1%

5.3%

5.2%

5.8%

7.3%

1.1%

-0.5%

9.2%

-2% 0% 2% 4% 6% 8% 10%

Total Shares

Regular Shares & Dep.

Share Drafts

MMA

IRA/Keogh

Share Certificates

12-Mo. Growth in Shares SegmentsData as of 9.30.18

3Q18

3Q17


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Certificate growth accelerates 3.8 percentage points YoY

$194.5 $190.5 $191.2$200.3

$210.9$230.3

-3.7%

-2.1%

0.4%

4.7%

5.3%

9.2%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

$0

$50

$100

$150

$200

$250

3Q13 3Q14 3Q15 3Q16 3Q17 3Q18

Bill

ion

s

Share Certificate Balances and Annual GrowthData as of 9.30.18


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Total borrowings increase 15.0% year-over-year

$30.1 $38.6 $47.7 $48.4 $51.8 $59.6

2.8%

3.4%

4.0%3.7% 3.8%

4.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

3Q13 3Q14 3Q15 3Q16 3Q17 3Q18

Bill

ion

s

Total Borrowings and Borrowings/AssetsData as of 9.30.18

Total Borrowings Borrowings/Assets


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Participation sales plateau as rising rates squeeze margins

$2.7 $4.0 $5.3 $7.3 $7.6 $7.4

5.7%

48.3%

33.8%

37.6%

3.4%

-2.4%

-5%

5%

15%

25%

35%

45%

55%

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

3Q13 3Q14 3Q15 3Q16 3Q17 3Q18

Bill

ion

s

YTD Total Participations Sold and Annual GrowthData as of 9.30.18


Thanking Members through

Black Friday Specials

Dan Clarke, Chief Operating Officer

Service Credit Union

About Service Credit Union

• Headquartered in

Portsmouth, NH

• Approximately $3.4B

in assets

• Over 254,000

members

• 722 employees

• 51 branch locations

The Challenge/Opportunity

• Started offering Black Friday specials in 2004 at a

much smaller ($15M) credit union – found we could

bring in 10% of our deposits in a single day.

• Not the same sense of urgency or model at Service, but

it was so popular we’ve carried on the tradition.

• It’s an opportunity to make a stressful day fun for

both members and staff.

• The specials create excitement, with members asking

what we have planned each year.

Last Year’s Specials

Variety is Key & Cost-Effective

The Results

• In 2017, the 10% certificate special was very popular.

• We opened more than 2,500 certificates and 200 personal loans!

• Attracted a lot of attention, without costing a lot of money due to the short (3-month) term and maximum deposit amount.

• We’ve seen a strong retention rate from those accounts.

• Although the intent was to reward existing members, 8% of the accounts were new members

Lessons Learned & Keys to Success

1. Be different - Don’t do the same things everyone else

is doing and vary the offers to keep it interesting.

2. Be creative - Show off the fun side of banking that day

as everyone knows it can be exhausting for those

working and members shopping.

3. Keep the credit unions’ needs in mind – Reward

members while helping meet the organization’s goals.

4. Reward staff – We give a trophy to the branch that has

the best production on that day. It’s a fun competition

that focuses on recognition rather than cash

compensation.

5. Keep it light - By keeping it light, everyone can have a

great time.

Questions & Discussion

Trendwatch 3Q 2018 - Callahan &...

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