This report is provided quarterly by the Ohio Credit

[Pages:24]This report is provided quarterly by the Ohio Credit Union League as a service to its member credit unions. This and past editions are always available at

WRITTEN AND EDITED BY: ANDREW LEPCZYK AND UMBERTO DONDA

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2ND QUARTER 2022

PERFORMANCE COMPARISON REPORT

TABLE OF CONTENTS

Key Performance Comparisons National Economic Summary

OHIO CREDIT UNION RESULTS

State Macroeconomic Summary Ohio State Credit Unions Lending -- Overview Lending -- Real Estate Lending -- Auto Lending -- Credit Cards Shares Earnings Members Special Section -- Resilience in Recession

PERFORMANCE DATA TABLES

Consolidated U.S. Credit Union Financial Statement U.S. Credit Union Peer Group Performance Consolidated Ohio Credit Union Financial Statement Ohio Credit Union Peer Group Performance Ohio Credit Union Leaders

3 4

5 6 7 8 9 10 11 12 13 14-15

16 17 18 19 20-24

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KEY PERFORMANCE COMPARISONS | AS OF JUNE 30, 2022

Number of CUs Federal-Chartered CUs

State-Chartered CUs, NCUSIF Insured State-Chartered CUs, ASI Insured Total State-Chartered CUs Total Members Members, Average per CU # of Mergers/Liquidations YTD Total Assets Total Loans Total Shares Total Capital Average Asset Size

OVERVIEW U.S. CUs

4,957 3,042 1,811

104 1,915 133,919,345 27,016

92 $2,158,590,452,306 $1,400,248,014,783 $1,874,417,626,808

$205,576,616,092 $435,463,073

2Q 2022 QUARTERLY PERFORMANCE SUMMARY 3

OH CUs 228 124 59 45 104

3,162,807 13,872 4

$43,048,609,971 $28,379,280,302 $37,279,565,034

$4,275,817,957 $188,809,693

Ohio as % of Industry 4.60% 4.08% 3.26%

43.27% 5.43% 2.36%

51.35% 4.30% 1.99% 2.03% 1.99% 2.08%

43.36%

Interest Income Interest Expense Net Interest Margin Loss Provisions Operating Expenses (including stabilization expenses) Non-Interest Income ROA

EARNINGS

U.S. CUs

3.03% 0.36% 2.67% 0.16% 2.77% 1.12% 0.86%

OH CUs

3.04% 0.35% 2.70% 0.12% 2.90% 1.13% 0.80%

12-Month Loan Growth 12-Month Share Growth 12-Month Member Growth 12-Month Capital Growth 12-Month Asset Growth Loans/Shares Capital/Assets Delinquency Ratio Average Loan Balance Average Share Balance

BALANCE SHEET

U.S. CUs

16.13% 8.07% 4.19% -3.67% 7.96%

74.70% 9.52% 0.48%

$16,547 $13,888

OH CUs 12.35% 4.96% 2.85% -2.61% 5.33% 76.13% 9.93% 0.37% $15,648 $11,663

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4 2Q 2022 QUARTERLY PERFORMANCE SUMMARY

NATIONAL ECONOMIC SUMMARY

U.S. GDP GROWTH Source: Federal Reserve

Consumer Price Index (CPI) Source: Federal Reserve

MARKET PERFORMANCE Source: Federal Reserve

TREASURY YIELD CURVE Source: U.S. Treasury

EXECUTIVE SUMMARY

Recession fears intensified after real U.S. GDP contracted for the second straight quarter, while June CPI inflation data spiked 9.1% since last year. The University of Michigan's Consumer Sentiment Index hit its lowest level on record, meaning that Americans are more pessimistic about the economic outlook than after 9/11 or during the Great Recession. Rising prices prove challenging for workers even amidst a historically favorable labor environment. Workforce metrics closed the quarter at 3.6% unemployment and 1.8 job openings for every unemployed person as of June 30. Despite the seemingly tight market for labor, salaries aren't rising as fast as the cost of living, and Americans are feeling the pinch. The Federal Reserve will be watching all economic indicators to determine monetary policy this fall.

From the credit union perspective, these dynamics mean that many members are dealing with the double-whammy of both a higher cost of living and more expensive financing options. Despite this, members are still turning to credit unions in number, with industry loan balances growing at all-time record rates. As asset prices surge, credit unions must be sure to monitor asset quality, while also working to help those who are priced out of ownership markets entirely. Tumultuous economic periods provide the opportunity for cooperatives to double down on their mission to serve the underserved.

INDUSTRY OVERVIEW FOR U.S. CREDIT UNIONS | DATA AS OF 6.30.22 Source: Callahan & Associates

Assets Loans Shares Investments Capital Members

As of 6/30/2022

12-mo. Growth 2Q22

12-mo. Growth 2Q21

$2,158.6B

8.0% 13.0%

$1,400.2B 16.1% 5.0%

$1,874.4B

8.1% 15.0%

$657.3B -6.2% 31.3%

$205.6B -3.7% 7.7%

133.9M

4.2%

4.0%

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STATE MACROECONOMIC SUMMARY

UNEMPLOYMENT RATES OHIO VERSUS NATIONAL AVERAGE

UNITED STATES MORTGAGE RATES

OHIO PAYROLL COMPOSITION

2Q 2022 QUARTERLY PERFORMANCE SUMMARY 5

Macro Trends

? The United States labor market remains tight, with the national unemployment rate holding at a near-record low 3.6% as of June 30. Those looking for work are having no trouble finding employment. Hiring managers, on the other hand, are struggling to locate quality talent, further exacerbating the supply chain constraints which have contributed to record inflation.

? Ohio's 3.9% unemployment rate was above the national rate for the third quarter in a row, but continues to hit lows not seen since before the pandemic. A tighter market is good for workers, who can demand higher salaries and more flexible work environments. Employers, of course, must adjust compensation accordingly.

? The Federal Reserve has unwaveringly maintained that fighting rampant inflation its top priority. Interest rate hikes are a primary tool in the monetary policy quiver, as increasing the cost of money generally slows velocity and reduces prices. Fed leaders have increased benchmark interest rates four times so far in 2022, and average mortgage rates have surged in tandem, placing new headwinds on the mortgage market.

? Ohio non-farm industries added 107,300 new jobs annually, inducing a 2.0% year-over-year expansion in payrolls. The largest gain was in the Leisure & Hospitality sector -- up 7.6% annually -- which is not surprising, considering they were particularly hard hit during the pandemic. However, as the pandemic wanes and demand for travel and entertainment increases, so do hospitality payrolls.

? Year-over-year, the two sectors that saw negative employment growth were education and health services, and government. The government sector saw a decrease of 1,600 jobs and the education and health services sector saw a decrease of 4,000 jobs. Despite the decrease, these are still the second and third largest employing sectors in Ohio.

? There is evidence these trends are reversing. In the second quarter, the largest payroll increases were in education and health services, adding 6,400 jobs, and the government sector, which added 6,300. Professional & Business Services saw the largest decrease in payroll, losing 8,300 jobs.

OHIO EMPLOYMENT GROWTH BY SECTOR

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6 2Q 2022 QUARTERLY PERFORMANCE SUMMARY

OHIO CREDIT UNIONS

State Snapshot

POPULATION: 11.7 million UNEMPLOYMENT RATE: 3.9% NUMBER OF CREDIT UNIONS: 228 NUMBER OF BANKS: 177

State Credit Union Quick Facts

DATA AS OF 6.30.22

Total Assets: $43,048,609,971

Total YTD Revenue: $897,344,933

Total Members: 3,162,807

Total Loans: $28,379,280,302

Average Delinquency: 0.37%

Total Capital: $4,275,817,957

Total Shares: $37,279,565,034

Average OpEx Ratio: 2.90%

Loans

OUTSTANDING LOAN BALANCES at Ohio credit unions grew 12.3% since last June to $28.4 billion, powered primarily by used auto and commercial lending which grew 16.1% and 25.8%, respectively. Residential first mortgages comprise 31.8% of the state's loan portfolio, and also grew 9.3% annually in dollar terms, though high asset values and rising rates may impact demand moving forward.

Ohio credit unions ORIGINATED just under $8.0 billion in new loans in the first half of 2022, a first half record. While the dollar amount of loan originations expanded 11.7% year-over-year, the number of originations rose at a slower rate of 3.3%, implying that members are originating higher-balance loans -- a symptom of inflation. Residential mortgages comprised just 24.5% of origination dollars this year.

Ohio's ASSET QUALITY RATIO ? delinquency plus net charge-offs ? increased 8 basis points annually to 0.55%. Used auto loans and credit card balances reported the sharpest increases in delinquency year-over-year.

Shares

Ohio SHARE BALANCE growth has slowed from mid-pandemic highs, expanding 5.0% annually to $37.3 billion. While deposit growth remains strong, it is less than half of the growth seen at the peak of the pandemic. Termed accounts like share certificates and IRA/ KEOGH balances continue to actively contract as both members and credit unions prefer liquid core account options.

Ohio credit unions added over $2.4 billion in CORE DEPOSITS over the past year, good for 9.2% annual growth. Core deposits consist of share drafts, regular shares, and money market accounts, and comprise 78.8% of state share balances. They are also low dividend, and the state's average cost of funds reflects their current popularity -- down 14 basis points year-over-year to 0.39%.

The state industry's LOAN-TO-SHARE RATIO increased 5.0 percentage points annually to 76.1% following another year of strong lending. Ohio credit unions' liquidity ratio remains below pre-pandemic values in the state, which were consistently in the 80.0% range.

Members

Ohio credit unions added nearly 88,000 new MEMBERS over the past year -- a 2.9% annual growth rate -- bringing the state industry total to 3.2 million members. This is a record membership number for the state, and growth is accelerating. Current membership numbers imply that more than one in four Ohioans is a credit union member in some capacity.

The AVERAGE MEMBER RELATIONSHIP -- average loan balance plus share balance per member -- is up $825, or 4.4%, year-over-year. Credit unions in Ohio have an average member relationship of $19,693. Following years of steady member growth, Ohio credit unions' SHARE DRAFT PENETRATION is up 51 basis points from one year ago, closing June at 51.3%.

Earnings

TOTAL YEAR-TO-DATE NET INCOME through June at Ohio credit unions fell 9.8% annually to $171.3 million. Relatedly, the state industry's return on assets (ROA) fell 16 basis points year-over-year from a record 0.96% last June to 0.80% through mid-year 2022. While the earnings slowdown is substantial, it aligns with the credit union movement's not-for-profit mission statement.

Ohio credit union REVENUE expanded 3.5% year-over-year to $897.3 million through June. As interest rates increase, interest income drove growth ? up 8.0% over the period ? while income from regular NII streams plummeted 15.2% from last year's pace as secondary market sales dried up. Interest income made up 72.2% of year-to-date income in the state. Ohio earnings were most impacted by large increases in credit union EXPENSES -- consisting of operating, interest, and provision expenses -- which grew 3.4% year-over-year to $717.5 million year-to-date. Operating expenses increased 4.7% annually as credit unions invested in staff and processes to meet record demand. Provision expenses surged 141.7% as delinquencies spiked.

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LENDING--OVERVIEW

YTD LOAN ORIGINATIONS FOR OHIO CREDIT UNIONS

ANNUAL TOTAL LOAN GROWTH FOR OHIO CREDIT UNIONS VS. PEERS

LOAN COMPOSITION FOR OHIO CREDIT UNIONS

2Q 2022 QUARTERLY PERFORMANCE SUMMARY 7

Lending Trends

? With interest rates held consistently low throughout the pandemic, lending volume set records. Now that rates are ticking back up, the lending environment is beginning to shift. Nationally, U.S. credit unions originated $412.8 billion in new loans in the first half of 2022 -- up 6.2% from a year ago -- including a record quarter of $220.5 billion in Q2. However, the number of originations declined 9.8% over the same period, and real estate originations contracted in both number and dollar terms as consumer lending soared.

? Ohio credit unions booked nearly $8.0 billion in new loan dollars so far this year, up 11.7% from the same period in 2021. This included a record setting $4.5 billion quarter in Q2. The number of loans originated also increased, though at a slower annual rate of 3.3%, as average loan balances expanded with inflation. Real estate lending hurt total originations, down 9.2%.

? Though loan pipelines are shifting alongside rate changes, loans are still flying off the figurative shelves. Record dollar originations are sticking to balance sheets as pre-payments slow. In Ohio, loan balances outstanding grew 12.3% annually.

? Ohio cooperatives hold $3.0 billion in outstanding commercial loans, good for 10.5% of total loans, the nineteenth largest concentration in any state. 92 of Ohio's 228 credit unions issue commercial loans, balances which grew 25.8% annually.

? Auto balances at Ohio credit unions expanded 14.3% since last June. Used and new vehicle balances grew 16.1% and 11.0%, respectively. The number of auto loans increased by 3.5%, driving average auto balances up to $15,935, the highest level ever in the state. Indirectly-sourced balances expanded 15.0% and comprise 78.0% of auto portfolios.

? Residential first mortgage balances outstanding increased 9.3% annually in Ohio despite rate increases. Other real estate -- mostly HELOCs -- expanded 14.6% annually as members tapped into newfound equity. Credit card balances also surged, up 5.2% since last June following renewed spending.

ANNUAL LOAN GROWTH BY TYPE FOR OHIO CREDIT UNIONS

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8 2Q 2022 QUARTERLY PERFORMANCE SUMMARY

LENDING--REAL ESTATE

ORIGINATIONS AND SALES TO SECONDARY MARKET FOR OHIO CREDIT UNIONS

OUTSTANDING RESIDENTIAL FIRST MORTGAGES COMPOSITION FOR OHIO CREDIT UNIONS

HISTORICAL REAL ESTATE ORIGINATION COMPOSITION FOR OHIO CREDIT UNIONS

Real Estate Lending Trends

? Nationally, mortgage activity cooled in the second quarter as rising home prices and interest rates combined to deter homebuying. Existing home sales dropped 5.4% from May to June, marking the fifth consecutive month of declining sales, according to the National Association of Realtors. Refinances dried up alongside higher rates, making up just 30% of new mortgage dollars in the second quarter, the lowest portion since 2018.

? Ohio credit unions granted over $2.5 billion in real estate loans through the first six months of 2022. While well above historical highs for the state, it is down 9.2% yearover-year. 23.7% of these origination dollars were backed by commercial real estate. Still, residential mortgages are performing well, as quarterly origination dollars grew 17.9% between Q1 and Q2 2022.

? Ohio credit unions generally prefer to hold fixed rate mortgages on balance sheets rather than sell them to secondary markets. With the popularity of fixed mortgages over the past few years -- and with rising rates -- that dynamic is accelerating. Now, 78.3% of Ohio credit union residential mortgages outstanding are fixed-rate, up from 69.3% a year ago.

? However, the popularity of non-residential and nonmortgage, such as HELOCs and commercial loans, increased significantly, comprising 43.0% of new origination dollars, up from 11.4% in Q2 of 2021. This growth in recent pipelines came at the expense of fixed-rate loans, as demand changes in real estate lending.

? As rates rise, credit unions are holding more new mortgages on their balance sheets, and selling fewer to secondary markets. Nationally, credit unions sold just 22.3% of new mortgage origination dollars to secondary buyers, down from 37.6% at this point last year. Ohio credit unions generally keep much higher portions than the national average, and this year is no exception, having sold just 11.9% of new mortgage dollars, down from 28.7% last year.

TOTAL REAL ESTATE DELINQUENCY FOR OHIO CREDIT UNIONS VS. PEERS

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