Alabama Profile Third Quarter 2010 As an affiliate with the League of Southeastern Credit Unions (LSCU), we are pleased to provide you with this profile that contains background economic and financial information to assist your credit union. All affiliated credit unions should have already received their Customized Performance Report for the first quarter. If you have not received your report, please contact Bill Berg, vice president of regulatory affairs and he will resend it. You can reach Bill at 866.231.0545 x1028 or bill.berg@lscu.coop
The savings growth rate through the third quarter in Alabama is nearly double the national growth rate. Improvements in unemployment numbers must be taken with a grain of salt. The unemployment formula divides the unemployed by total workers. This equation excludes people who have stopped looking and people who are underemployed. As the recovery continues to gain traction and previously unemployed people find jobs, those reductions are offset by gains as unemployed and underemployed individuals become counted in the unemployed group in the numerator. This should keep the unemployment rate bumping in the nine to 10-percent area for most of 2010.
According to the National Bureau of Economic Research (NBER) the Great Recession, the longest-lasting recession the U.S. has experienced since World War II ended in June 2009. The NBER, is a panel of academic economists that dates the beginnings and ends of recessions. The bureau said the recession lasted 18 months, starting in December 2007. The longest prior post-war recessions occurred from 1973 to 1975 and from 1981 to 1982 – each lasting 16 months.
There are several economic indicators that are important for Alabama’s credit unions to track; unemployment rate, home prices, delinquent loans to loans, and net charge-offs. Alabama’s high unemployment is a deterrent to those thinking about relocating to the state. This slows down population growth and new residential home construction resulting in higher unemployment for the construction and associated service industries. Less demand for housing ultimately increases home foreclosures.
However, it has become increasingly clear that the recovery has been a jobless one and there are many unemployed or underemployed people. Until the unemployment and underemployment rates decrease, the anxiety that many consumers have will continue causing them to hold back on spending. Since consumer spending accounts for about 70 percent of the nation’s gross domestic product (GDP), the recovery will continue to sputter along. Household spending remains constrained and faces strong headwinds such as as a weak labor market, modest income growth, lower housing wealth, and tight credit. We should expect a long, slow recovery because the household sector's balance sheets are still in such poor shape.
Because the flow of new residents has slowed, Alabama has experienced a dramatic increase in unemployment within businesses that depend on new construction – county building permits, concrete companies, plumbers, electricians, sheetrock installers, roofers, etc. Many of these workers have suffered reduced hours and layoffs. This has caused Alabama’s unemployment rate, which until 2009 was below the national average, to exceed the national average since then. The chart below demonstrates how the spread of Alabama’s unemployment rate, when compared to the national rate, has been bouncing around a spread of around one points higher than the national average.
Despite the weak recovery, gradual improvement in credit union results is occurring. This follows two of the most difficult years ever for credit unions operations in 2008 and 2009. Most significant, was the further improvement in credit union earnings in the third quarter. Despite the continuing assessments from the NCUA, Alabama’s credit unions collectively had a ROAA of 0.56-percent.
Alabama’s state revenues have been affected, and it’s not just in Alabama. According to the National Governors Association, state governments will
Although that pales in comparison to the 90 basis points (bp) to 100 bp that many credit unions became accustomed to before the recession, it represents a marked improvement from the previous two years.
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Alabama Profile Third Quarter 2010 $212,000 – above what the median household could afford. The market appears to have stabilized some now, and the median home price has dropped to $170,000.
struggle with revenue at least until 2012 or longer. State governments have taken measures to cut expenses and raise taxes and fees. Like consumers, the states aren't spending. They cut expenditures by 4.8-percent in 2009 and are expected to cut at least 4-percent in 2010. That would be the first time states have cut spending in back-toback years.
The affect of these events is likely to have a chilling result in the real estate market for the next several The Office of Federal Housing Enterprise Oversight (OFHEO) estimates and publishes quarterly house price indexes for single-family, detached properties using data on conventional conforming mortgage transactions obtained from the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).
Unemployment Rates USA
Alabama
13.0% 11.0% 9.0% 7.0%
Quarterly house price indexes (HPI) are reported for the nation, the nine U.S. Census divisions, the 50 states and the District of Columbia. The HPI for each geographic area is estimated using repeated observations of housing values for individual single-family residential properties on which at least two mortgages were originated and subsequently purchased by either Freddie Mac or Fannie Mae since January, 1975. The use of repeat transactions on the same physical property units helps to control differences in the quality of the houses comprising the sample used for statistical estimation. For this reason, the HPI is described as a “constant quality” house price index.
5.0%
Q
Q
3/ 08 4/ 08 Q 1/ 09 Q 2/ 09 Q 3/ 09 Q 4/ 09 Q 1/ 10 Q 2/ 10 Q 3/ 10
3.0%
In real estate, two events will pose a drag on real estate recovery going forward: 1.) The commercial real estate (CRE) market has not felt the affects of the real estate meltdown to the same degree as the residential lending market. Most residential loans are chopped into securities and sold. As the value of those securities declined, financial institutions have had to reduce the value of those investments by marking them to market. Lenders with commercial construction loans on the books generally keep them on their books and will soon have to decide whether to “extend and pretend,” or write the loan off. With the banking industry facing commercial real estate losses in the $200 to $300 billion range, bank regulators are encouraging delay (pretend) and extend to avoid any additional big hits to the FDIC’s already empty insurance fund.
LSCU peer states, (Georgia and Mississippi), have generally experienced lower growth in real estate prices and have not fallen as much as the national average. The trends indicate that the rate of decline in all three states and the U.S. is dramatically slowing down. In Alabama, prices actually showed some slight gains in the fourth quarter of 2009. However, the past three quarters have seen continuing price declines given the strong headwinds facing the real estate market – high unemployment rates, levels of delinquency, levels of foreclosures, and other properties that have been held off the market from re-entering; we are unlikely to see rapid improvement in the real estate arena. The worst is clearly behind us, but expect the real estate market to be bumpy for the next several years.
2.) A significant percentage of homes have more debt than their market value. In some markets this has led to people walking away from their homes (strategic default or foreclosure). With the number of homes underwater it is inevitable that losses in the real estate arena will continue. This will be a drag on the recovery in the real estate market. Houses have been overvalued for about 10 years. The rule-of-thumb is that consumers can afford a house valued at two and one-half to three times their income. The median household income is $55,000 per year, but the median home price had been running about
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Alabama Profile Third Quarter 2010 credit unions saw the net charge-off rate decrease by another two bp. Alabama’s credit unions have been lower than the national average for the past 11 quarters.
Real Estate Prices USA
Alabama
Georgia
Mississippi
15.00% 10.00%
Net Charge-Offs USA
5.00% 0.00% -5.00% -3
-1
0.50%
10
-3
10
-1
09
-3
09
-1
08
-3
08
-1
07
-3
07
-1
06
06
05
05
-3
1.00%
-1
-10.00%
Alabama
1.50%
-15.00%
0.00% Q3/08
The following seven graphs have been developed by downloading and analyzing current and historical Call Report Data from the NCUA. The last page of this profile contains third quarter national and Alabama statistics. Additionally, other ratios as well as historical information for Alabama going back to 2006 are included. There is also a breakdown into four asset-size ranges so you can review your credit union’s performance compared with your Alabama peers.
Q1/09
Q3/09
Q1/10
Q3/10
The current levels of delinquent loans-to-loans ratio and net charge-offs to loans ratios makes it difficult for long term successful credit union operations but both are improving which is a welcome sign. Alabama’s credit unions have been better than the national average in each of the past 11 quarters. Alabama’s credit unions collectively despite continuing assessments by the NCUA have maintained a positive ROAA and are generating a healthy 0.56-percent ROAA, and Alabama’s credit unions were able to buck the national trend that showed a decrease of six bp in ROAA because of the assessment.
After seven consecutive quarters of growth in delinquent loans-to-loans, the national rate finally showed a drop of six bp in the first quarter and followed that with another drop of three bp in the second. This rate increased by two bp in the third quarter. Alabama’s credit unions have had better delinquency numbers than the national numbers for the past nine quarters.
ROAA USA
Delinquent Loans to Loans USA
Alabama
0.50%
2.00%
0.00%
1.50%
-0.50%
1.00%
-1.00%
0.50%
-1.50%
0.00% Q2/08
Alabama
1.00%
Q4/08
Q4/08
Q2/09
Q4/09
Q2/09
Q4/09
Q2/10
Q2/10
New and used car loans have shown positive growth for Alabama’s credit unions during five of the past nine quarters. During those nine quarters Alabama’s credit unions have been better than the national rates six times. It is typical during challenging economic times for members to retain cars longer than normal
Nationally, after seven consecutive quarters of increases, the net charge-off rate declined but it was only by one bp in the first quarter and remained the same in the second. This rate declined six bp in the third quarter. Alabama’s
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Alabama Profile Third Quarter 2010 until economic conditions improve. Because the average car loan lasts around 30 months, a great deal of the decline in auto lending in Alabama can be attributed to loans being paid off and not replaced immediately by other car loans.
Membership Growth USA 1.50% 1.00% 0.50% 0.00% -0.50% -1.00% -1.50% -2.00%
Auto Loan Growth USA
Alabama
Alabama
0.020%
Q3/08
0.010%
Q1/09
Q3/09
Q1/10
Q3/10
0.000% -0.010%
Alabama’s credit unions, despite high unemployment and a very weak economy, saw positive savings growth in the third quarter. Alabama’s credit unions have had larger savings growth rates or smaller negative numbers than the national numbers for nine of the past 11 quarters. As the economy improves, expect to see more robust savings growth as members, who feel less secure about their jobs, social security, homes, and retirement accounts, increase their savings in federally insured accounts. All recessions since World War II have been shorter than the Great Recession. Previously the economy bounced back quickly. The recent economic crisis has shaken consumer confidence as nearly every assumption about safe places to put money for growth has been turned upside down.
-0.020% -0.030% Q3/08
Q1/09
Q3/09
Q1/10
Q3/10
Real estate lending has been one of the main drivers of Alabama’s credit union earnings for the past decade. Alabama’s credit unions have had positive growth during the past nine quarters and performed better than the national average in each of those quarters.
Real Estate Loan Growth USA
Alabama
5.00% 4.00%
Savings Growth
3.00%
USA
2.00% 1.00% 0.00% -1.00% Q3/08
Q1/09
Q3/09
Q1/10
Alabama
7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00%
Q3/10
Membership has been up in eight of the last 10 quarters. Alabama’s credit unions’ membership results were negative in the third quarter while nationally, credit unions grew 0.30-percent.
Q3/08
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Q1/09
Q3/09
Q1/10
Q3/10
Alabama Profile Third Quarter 2010 Real estate, like the stock market, historically seemed to go in one direction. Many speculators purchased real estate with the expectation of selling the following year for a 15-to 20-percent profit.
The stock market for many investors always seemed to be on an upward trend. In 1980, the Dow Jones Industrial Average (DJIA) was in the 800s. By 2001, the DJIA was hovering just under 11,000. Then the 9/11 attacks occurred and the DJIA dropped to 8,000 by 2003. Over the next four years, it climbed to a new high of 13,930 in 2007. The Great Recession took nearly half the value out of the stock market and this average had retreated to 7,062 in 2009 (where it was at in 1996). Since this recent low, the volatility, as evidenced by triple digit gains or losses, has caused many investors to wait on the sidelines.
To access prior economic profiles for Alabama visit the LSCU’s Economic Data and Research page under the Compliance and Operational Support tab at our website below. This page has economic research from CUNA and the Filene Research Institute as well as valuable credit union econometric data for Alabama. www.lscu.coop
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Alabama Profile Third Quarter 2010 USA Demographic Information
Alabama Credit Unions
Sep 10
Sep 10
2009
2008
Alabama CU Asset Groups
2007
2006
<$6Mil
$6-18
$18-80
>$80
Number of CUs
7,556
130
134
140
148
154
36
29
35
30
Average Assets ($mil)
121.8
117.2
107.9
93.2
81.9
73.2
3.0
11.5
39.4
447.3
Total Assets ($mil)
920,026
15,239
14,455
13,052
12,122
11,277
108
333
1,377
13,420
Total Loans ($mil)
574,853
7,641
7,716
7,324
6,884
6,526
63
182
761
6,636
Total Savings ($mil)
790,745
13,350
12,650
11,278
10,447
9,773
90
274
1,200
11,785
92,020
1,749
1,783
1,721
1,679
1,635
26
59
195
1,469
FT Employees
221,793
4,114
4,099
4,161
3,984
3,775
51
123
510
3,430
PT Employees
31,222
411
412
446
472
493
35
29
47
300
Total Members (thous)
Growth Rates Total Assets
2.6%
5.4%
10.7%
7.7%
7.5%
4.5%
Total Loans
-1.0%
-1.0%
5.4%
6.4%
5.5%
5.8%
These growth rates are from the previous December's call report data.
Total Savings
3.6%
5.5%
12.2%
8.0%
6.9%
3.8%
Total Members
0.9%
-1.9%
3.6%
2.5%
2.7%
1.9%
Earnings (bp) Yield on Total Assets
4.88
4.84
5.95
6.41
6.04
5.52
6.61
7.35
7.35
6.82
-Dividend/Interest Cost
-1.30
-1.45
-2.63
-3.09
-2.65
-2.07
-1.14
-1.86
-2.16
-2.19
+Fee and Other Income
0.77
1.01
1.23
1.18
1.16
1.03
0.56
1.90
1.83
1.47
-Operating Expense
-3.13
-3.11
-3.33
-3.35
-3.29
-3.18
-4.27
-5.98
-6.04
-4.48
-Loss Provisions
-0.78
-0.73
-0.47
-0.36
-0.29
-0.40
-2.01
-0.70
-1.05
-0.68
0.44
0.56
0.75
0.79
0.97
0.90
-0.25
0.71
-0.07
0.94
Delinquent Loans/Loans
1.76%
1.31%
1.21%
1.08%
1.02%
1.05%
3.49%
2.18%
1.47%
1.25%
Net Charge Offs/Loans
1.14%
0.84%
0.71%
0.52%
0.48%
0.61%
1.95%
1.11%
1.46%
1.23%
=Net Income (ROA) Asset Quality
Other Ratios (%) Avg Shares/Member
$
8,593
$
7,633
$
6,553
$
6,223
$
5,978
$
5,870
$ 3,434
$ 4,656
$ 6,164
$
Avg Loan Bal/Member
$
6,247
$
4,369
$
4,255
$
4,100
$
3,992
$
3,845
$ 2,376
$ 3,095
$ 3,906
$
8,022 4,517
Travel & Conf/Thous Assets
27.6%
27.5%
39.6%
41.0%
41.5%
40.6%
35.1%
51.4%
76.5%
37.2%
SD Penetration
44.1%
42.4%
41.3%
41.0%
38.6%
40.2%
10.1%
27.5%
37.6%
44.2%
Members/Branch
4,289
4,214
4,002
3,923
3,892
3,903
731
1,681
2,404
5,586
Employees/Thousand Mbrs Cash/Assets
2.58
2.47
2.55
2.51
2.46
0.87%
1.37%
1.43%
1.21%
1.22%
2.39 10.25%
2.60
2.34
2.74
2.44
0.89%
1.87%
1.98%
1.30%
Investment Yield
1.94%
2.08%
3.74%
4.52%
4.09%
3.45%
1.17%
2.09%
2.62%
3.20%
Loan Yield
6.11%
6.40%
6.63%
6.81%
6.58%
6.24%
9.22%
11.47%
10.96%
9.35%
Net Worth Ratio
9.99%
11.11%
12.09%
12.27%
12.38%
11.92%
16.00%
17.37%
12.22%
10.80%
Loan Distribution Loans/Assets
62.5%
50.1%
56.1%
56.8%
57.9%
57.1%
57.8%
54.7%
55.2%
49.4%
Credit Cards/Total Loans
6.1%
5.8%
5.8%
6.0%
5.6%
5.6%
0.9%
1.0%
2.7%
6.4%
Other Unsec Loans/Total Lns
4.5%
5.9%
6.2%
6.5%
6.4%
6.7%
20.5%
12.1%
9.2%
5.2%
Total Unsec Lns/Total Lns
10.6%
11.7%
12.0%
12.4%
12.0%
12.3%
21.4%
13.2%
11.9%
11.6%
New Automobile/Total Loans
11.5%
12.9%
18.3%
19.9%
20.4%
20.1%
20.5%
19.8%
12.6%
12.7%
Used Automobile/Total Loans
17.8%
27.2%
24.7%
25.3%
27.0%
28.7%
38.1%
29.8%
30.3%
26.7%
Total Car Loans/Total Loans
29.4%
40.1%
43.0%
45.2%
47.4%
48.8%
58.5%
49.6%
42.9%
39.4%
1st Mtg Loans/Total Lns
39.1%
33.9%
31.0%
27.9%
26.6%
25.7%
11.3%
24.1%
32.9%
34.4%
2nd Mtg Loans/Total Lns
15.7%
8.3%
8.6%
8.9%
8.0%
7.5%
2.2%
4.8%
5.0%
8.9%
Ttl Real Estate Lns/Total Lns
64.8%
42.2%
39.6%
36.9%
34.6%
33.1%
13.5%
28.9%
37.9%
43.3%
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