Daily Economic UpdateApril 24th, 2020

Mike Schenk, Deputy Chief Advocacy Officer for Policy Analysis and Chief EconomistCredit Union National AssociationCell: 608-445-0119mschenk@cuna.coop

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%

Ass

et G

row

th R

ate

in E

ach

of th

e N

ext 2

Yea

rs

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