daily economic update€¦ · high exposure to loans with known risks, such as unsecured...
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Daily Economic UpdateApril 24th, 2020
Mike Schenk, Deputy Chief Advocacy Officer for Policy Analysis and Chief EconomistCredit Union National AssociationCell: [email protected]
US Economy:1) In Recession – U not V2) Unemployment rate likely to peak over 20%3) Deflation a big concern4) Rates: Lower for longer
Credit Unions:1) CUs “well positioned”2) Earnings declines & capital erosion a lot more obvious 3) The “CU Difference”: Members & Employees
Overview: US Economy & CUs
Signs the Curve is FlatteningDaily Change in Number of U.S. Confirmed COVID CasesUpdated through April 20th 2020. Centered 5-day moving average // Johns Hopkins University
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1-Mar 8-Mar 15-Mar 22-Mar 29-Mar 5-Apr 12-Apr 19-Apr
• Social distancing, quarantine & isolation reigning in virus spread
• Gains need to be locked-in with continued suppression, testing, effective treatment/vaccine, or herd immunity
https://coronavirus.jhu.edu/map.html
217,000 211,000 282,000
3,283,000
6,867,000 6,606,000
5,245,000
4,427,000
March 5th March 12th March 19th March 26th April 2nd April 9th April 16th April 23rd
Unemployment Insurance Weekly ClaimsWeekly totals. As of April 16th, 2020 // Source: BLS
26 million jobs lost in five weeks
https://oui.doleta.gov/unemploy/claims.asp
3.5% 3.5% 4.4%6.4%
10.6%
14.7%
17.9%
20.6%
March 5th March 12th March 19th March 26th April 2nd April 9th April 16th April 23rd
Highest Unemployment Rate since 1938 CUNA weekly estimate – based on Initial Claims. As of April 16th, 2020 // Source: BLS
CUNA Credit Union ForecastApril 16, 2020
Actual Results Quarterly Results/Forecasts Annual Forecasts5 Yr Avg 2019 2020:1 2020:2 2020:3 2020:4 2020 2021
Growth rates:Savings growth 6.8% 8.1% 5.3% 3.9% 1.2% 1.6% 12.0% 8.0%Loan growth 9.3% 6.5% 0.5% 0.3% 0.5% 0.7% 2.0% 3.5%Asset growth 6.9% 7.7% 4.5% 3.0% 1.0% 1.5% 10.0% 7.0%Membership growth 3.9% 3.6% 0.5% 0.0% 0.0% 0.5% 1.0% 1.5%
Liquidity:Loan-to-share ratio** 82.1% 84.4% 80.6% 77.8% 77.2% 76.6% 76.6% 73.4%
Asset quality:Delinquency rate** 0.77% 0.70% 0.75% 1.25% 1.50% 1.25% 1.25% 1.10%Net charge-off rate* 0.55% 0.56% 0.58% 0.90% 1.00% 1.00% 0.87% 0.75%
Earnings:Return on average assets (ROA)* 0.83% 0.93% 0.80% 0.25% 0.25% 0.25% 0.40% 0.30%
Capital adequacy:Net worth ratio** 11.1% 11.4% 10.9% 10.7% 10.6% 10.5% 10.5% 10.1%
*Quarterly data, annualized. **End of period ratio. Additional information and updates available on our website https://www.cuna.org/economics/
Stressed?High exposure to COVID
“hot spots” or directly affected industries (travel
& hospitality & transportation, traditional
retail)
High exposure to sectors already struggling for
other reasons (oil & gas, traditional retail,
agriculture, international trade)
High exposure to loans with known risks, such as
unsecured (single-service credit cards, private
student loans), sub-prime borrowers, developers
High exposure to most vulnerable populations (such as gig workers)
Low net worth (capital) ratios, and/or small loss
allowances Weak baseline earnings
Low levels of liquidity/lack of access to
liquidity
Low use of third party support (SBA, payment
protection, private mortgage insurance)
Low revenue diversification
Low asset diversification CECL adopted for loss allowance
Lack of flexibility in operating expenses
UNEMPLOYMENT!
LIFE’S MOST PERSISTENT AND
URGENT QUESTION IS:
WHAT ARE YOU DOING FOR
OTHERS?
10.8%
-1.00% -0.75% -0.50% -0.25% 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50%-20.0% 14.3% 14.9% 15.5% 16.2% 16.8% 17.4% 18.1% 18.7% 19.3% 20.0% 20.6%-17.5% 13.3% 14.0% 14.6% 15.2% 15.8% 16.4% 17.0% 17.6% 18.2% 18.9% 19.5%-15.0% 12.5% 13.1% 13.7% 14.3% 14.9% 15.5% 16.1% 16.7% 17.2% 17.8% 18.4%-12.5% 11.7% 12.3% 12.9% 13.5% 14.0% 14.6% 15.2% 15.8% 16.3% 16.9% 17.5%-10.0% 11.0% 11.6% 12.2% 12.7% 13.3% 13.8% 14.4% 14.9% 15.5% 16.1% 16.6%-7.5% 10.4% 10.9% 11.5% 12.0% 12.6% 13.1% 13.6% 14.2% 14.7% 15.3% 15.8%-5.0% 9.8% 10.3% 10.9% 11.4% 11.9% 12.4% 13.0% 13.5% 14.0% 14.5% 15.1%-2.5% 9.3% 9.8% 10.3% 10.8% 11.3% 11.8% 12.3% 12.8% 13.4% 13.9% 14.4%0.0% 8.8% 9.3% 9.8% 10.3% 10.8% 11.3% 11.8% 12.3% 12.8% 13.3% 13.8%2.5% 8.3% 8.8% 9.3% 9.7% 10.2% 10.7% 11.2% 11.7% 12.2% 12.7% 13.2%5.0% 7.8% 8.3% 8.8% 9.3% 9.8% 10.2% 10.7% 11.2% 11.7% 12.1% 12.6%7.5% 7.4% 7.9% 8.4% 8.8% 9.3% 9.8% 10.2% 10.7% 11.2% 11.6% 12.1%
10.0% 7.1% 7.5% 8.0% 8.4% 8.9% 9.3% 9.8% 10.3% 10.7% 11.2% 11.6%12.5% 6.7% 7.2% 7.6% 8.0% 8.5% 8.9% 9.4% 9.8% 10.3% 10.7% 11.2%15.0% 6.4% 6.8% 7.3% 7.7% 8.1% 8.6% 9.0% 9.4% 9.9% 10.3% 10.8%17.5% 6.1% 6.5% 6.9% 7.4% 7.8% 8.2% 8.6% 9.1% 9.5% 9.9% 10.4%20.0% 5.8% 6.2% 6.6% 7.0% 7.5% 7.9% 8.3% 8.7% 9.1% 9.6% 10.0%22.5% 5.5% 5.9% 6.3% 6.8% 7.2% 7.6% 8.0% 8.4% 8.8% 9.2% 9.6%25.0% 5.3% 5.7% 6.1% 6.5% 6.9% 7.3% 7.7% 8.1% 8.5% 8.9% 9.3%27.5% 5.0% 5.4% 5.8% 6.2% 6.6% 7.0% 7.4% 7.8% 8.2% 8.6% 9.0%30.0% 4.8% 5.2% 5.6% 6.0% 6.4% 6.8% 7.1% 7.5% 7.9% 8.3% 8.7%32.5% 4.6% 5.0% 5.4% 5.7% 6.1% 6.5% 6.9% 7.3% 7.7% 8.0% 8.4%35.0% 4.4% 4.8% 5.1% 5.5% 5.9% 6.3% 6.7% 7.0% 7.4% 7.8% 8.2%37.5% 4.2% 4.6% 4.9% 5.3% 5.7% 6.1% 6.4% 6.8% 7.2% 7.6% 7.9%40.0% 4.0% 4.4% 4.8% 5.1% 5.5% 5.9% 6.2% 6.6% 7.0% 7.3% 7.7%
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XYZ CU - Florida (Assets = $40 million) - '09 Assets +10%; '10 ROA -0.70%Projected Net Worth Ratio At the End of 2 Years
Using Various Combinations of 2-Year Asset Growth and Earnings Assumptions
Your current net worth ratio as a percent of period-end assets =
Return on Assets (ROA) in Each of the Next 2 Years
Implications & Questions