Florida 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
A significant contributor to the earnings improvement was the 32 bp decline in the provision for loan loss expense, from 185 bp of assets during 2009 to 153 bp through the third quarter of 2010. A surprise in the data is the negative savings growth rate through the third quarter. Members apparently are using their extra cash balances to pay down loans rather than to build savings balances. 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. 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.
There are several economic indicators that are important for Florida's credit unions to track; unemployment rate, home prices, delinquent loans to loans, and net charge-offs. Florida'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. The result is that Florida has experienced a net flow reduction of nearly 200,000 residents.
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.
Because the flow of new residents has slowed, Florida has experienced a dramatic increase of unemployment in 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 Florida’s unemployment rate, which until 2007 was below the national average, to exceed the national average since then. The chart on the next
Most significant, was the further improvement in credit union earnings in the third quarter. Despite the continuing assessments from the NCUA, Florida’s credit unions collectively broke even for the first time in nine quarters. 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 negative earnings of the previous two years.
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