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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Florida Profile Third Quarter 2010 page demonstrates how the spread of Florida’s unemployment rate, when compared to the national rate, has been bouncing around a spread of two and one-half points higher than the national average.
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.
Because Florida has no personal state income tax, only taxes on sales and property, Florida has shifted most taxes onto the people coming in, whether new residents or tourists. The slower growth in conjunction with dminished tourism because of the Great Recession has greatly affected Florida’s revenues.
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 2 ½ to 3 times their income. The median household income is $55,000 per year, but the median home price had been running about $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.
It’s not just in Florida, according to the National Governors Association, state governments will 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-to-back years. Florida’s population growth will pick up when the economy improves, although probably at a lower level for several years. Baby boomers will start retiring in large numbers, and Florida will continue to attract immigrants from Latin America. But with declining birth rates and other states aggressively competing to attract retirees, maintaining a constant flow of new Floridians will become increasingly more difficult.
The affect of these events is likely to have a chilling result in the real estate market for the next several 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 $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.
Unemployment Rates USA
Florida
13.0% 11.0% 9.0% 7.0% 5.0% 3.0% 10
10
3/ Q
10
2/ Q
09
1/ Q
09
4/ Q
3/ Q
09
2/ Q
1/ Q
4/ Q
3/ Q
09
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-
08
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
08
In real estate, two events will pose a drag on real estate recovery going forward:
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).
2
Florida Profile Third Quarter 2010 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.
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. Unfortunately, these rates increased in the third quarter, nationally by two bp and 11 bp in Florida. These rates are still too high and must also be judged with net charge-offs, but these reductions or leveling off after many quarters of steady increases are a welcome sign that the corner may have been turned or is close to being turned.
Three of the sand states, (Florida, California, and Arizona), had equal or higher growth in real estate prices than the rest of the U.S. until 2006 and 2007. The trend indicates that the rate of decline in all three states and the U.S. has dramatically slowed down. However, given the strong headwinds facing the real estate market – high unemployment rates, high levels of delinquency, high levels of foreclosures and other properties that have been held off from re-entering the market, we are unlikely to see rapid improvement in the real estate arena. The worst seems to be behind us, but unfortunately we still have not found the bottom of the real estate market. California had two consecutive quarters of very small (but positive) price appreciation while housing prices nationally, in Florida, Arizona, and now in California continues to fall slightly.
Delinquent Loans to Loans USA 3.00% 2.00% 1.00% 0.00% Q3/08
Florida
California
Q1/09
Q3/09
Q1/10
Q3/10
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 and six bp in the third quarter. Florida’s credit unions, after eight consecutive quarters of increases, saw the net charge-off rate decrease by three bp in the second quarter and followed that up with another drop of three bp in the third quarter. Although these are very small decreases, at least they are going in the right direction after two very tough years.
Real Estate Prices USA
Florida
4.00%
Arizona
40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -3
-1
Net Charge-Offs
10
-3
10
-1
09
-3
09
-1
08
-3
08
-1
07
-3
07
-1
06
-3
06
-30.00%
05
05
-1
-20.00%
USA
Florida
2.50% 2.00%
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 Florida statistics. Additionally, other ratios as well as historical information for Florida 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 Florida peers.
1.50% 1.00% 0.50% 0.00% Q3/08
3
Q1/09
Q3/09
Q1/10
Q3/10
Florida Profile Third Quarter 2010 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.
Real estate lending has been one of the main drivers of Florida's credit union earnings for the past decade. Unfortunately, Florida’s real estate market has been in a free fall for the past several years. Florida credit unions have had negative growth in seven of the past eight quarters.
Florida’s credit unions have been below the national average in each of the past 10 quarters and have had negative earnings as a group since the second quarter of 2008. Nationally, credit unions ROAA increased by four bp from the previous quarter. Florida’s credit unions collectively improved their ROAA 10 bp and the good news is that it is no longer negative. The bad news is it’s not positive either.
Much of the negative numbers can be attributed to a variety of factors such as: weak population growth, high unemployment, overall weakness in the real estate markets, and the desire for credit unions to limit their exposure in the real estate market because of losses attributable to foreclosed real estate or expected from real estate.
ROAA USA
Florida
Real Estate Loan Growth
0.50%
USA
0.00%
3.00%
-0.50%
2.00%
-1.00%
1.00%
-1.50%
0.00%
Florida
-1.00%
-2.00% Q3/08
Q1/09
Q3/09
Q1/10
Q3/10
-2.00% Q3/08
New and used car loans have shown negative growth for Florida's credit unions during the past 10 quarters. During those 10 quarters the national rate has been better (either a smaller decline or an increase). It is typical during challenging economic times for members to retain cars longer than normal until economic conditions improve. Because the average car loan lasts around 30 months, a great deal of the decline in auto lending in Florida can be attributed to loans being paid off and not replaced immediately by other car loans. Nationally, car loan growth appears to be poised to go into positive territory soon.
Q1/09
Q3/09
Q1/10
Q3/10
Membership has been up in five of the last nine quarters. Florida’s credit unions’ membership results were negative in the third quarter while nationally, credit unions grew 0.30-percent.
Membership Growth USA
Florida
1.00% 0.50% 0.00%
Auto Loan Growth USA
-0.50%
Florida
0.020%
-1.00% Q3/08
0.000%
Q1/09
Q3/09
Q1/10
Q3/10
-0.020% -0.040% -0.060% Q3/08
Q1/09
Q3/09
Q1/10
Florida’s credit unions, because of high levels of unemployment and a very weak economy, saw negative savings growth in the third quarter. Florida’s credit unions have had smaller savings growth rates or
Q3/10
4
Florida Profile Third Quarter 2010 more negative numbers than the national numbers for the past 11 quarters. As the economy improves, expect to see more robust savings growth as members continue to feel less secure about their jobs, social security, homes, and retirement accounts, while increasing 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.
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.
Savings Growth
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.
USA
Florida
8.00% 6.00% 4.00%
To access prior economic profiles for Florida, 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 Florida.
2.00% 0.00% -2.00% -4.00% -6.00% Q3/08
Q1/09
Q3/09
Q1/10
Q3/10
www.lscu.coop
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Florida Profile Third Quarter 2010 USA Demographic Information
Florida Credit Unions
Sep 10
2009
Florida CU Asset Groups <$14Mil
$14-45
$45-140
Number of CUs
7,556
178
179
185
195
206
45
46
43
44
Average Assets ($mil)
121.8
237.9
238.0
224.7
210.4
192.9
5.9
28.7
82.9
845.5
Total Assets ($mil)
920,026
42,351
42,595
41,575
41,026
39,737
266
1,320
3,564
37,201
Total Loans ($mil)
574,853
26,725
28,205
29,238
29,017
27,405
127
725
2,036
23,837
Total Savings ($mil)
790,745
36,573
36,744
34,937
35,044
33,866
220
1,136
3,115
32,102
92,020
4,584
4,562
4,550
4,550
4,532
50
193
460
3,850
FT Employees
221,793
11,849
12,349
12,832
13,014
12,722
119
534
1,395
9,801
PT Employees
31,222
1,044
1,013
1,091
1,079
1,160
30
61
97
856
Total Members (thous)
Sep 10
2008
2007
2006
>$140
Growth Rates Total Assets
2.6%
-0.6%
2.5%
1.3%
3.2%
4.9%
Total Loans
-1.0%
-5.2%
-3.5%
0.8%
5.9%
9.0%
These growth rates are from the
Total Savings
3.6%
-0.5%
5.2%
-0.3%
3.5%
3.9%
previous December's call report data.
Total Members
0.9%
0.5%
0.3%
0.0%
0.4%
1.1%
Earnings (bp) Yield on Total Assets
4.88
5.06
5.59
6.46
6.56
6.03
5.00
4.90
4.74
5.08
-Dividend/Interest Cost
-1.30
-1.18
-1.73
-2.77
-3.18
-2.53
-0.84
-1.00
-1.01
-1.20
+Fee and Other Income
0.77
1.11
1.10
1.20
1.16
1.13
0.99
1.29
1.43
1.08
-Operating Expense
-3.13
-3.46
-3.34
-3.55
-3.50
-3.40
-4.87
-4.55
-4.31
-3.33
-Loss Provisions
-0.78
-1.53
-1.85
-1.62
-0.62
-0.31
-0.68
-0.79
-1.03
-1.61
0.44
0.00
-0.23
-0.28
0.42
0.92
-0.40
-0.15
-0.18
0.02
Delinquent Loans/Loans
1.76%
3.08%
3.12%
2.12%
1.35%
0.58%
2.52%
1.87%
2.27%
3.19%
Net Charge Offs/Loans
1.14%
2.25%
2.14%
1.56%
0.62%
0.42%
1.42%
1.17%
1.77%
2.33%
=Net Income (ROA) Asset Quality
Other Ratios (%) Avg Shares/Member
$
8,593
$
7,978
$
8,054
$
7,678
$
7,702
$
7,473
$ 4,365
$ 5,890
$ 6,767
$
Avg Loan Bal/Member
$
6,247
$
5,830
$
6,182
$
6,425
$
6,378
$
6,048
$ 2,520
$ 3,759
$ 4,424
$
8,273 6,143
Travel & Conf/Thous Assets
27.6%
26.7%
26.5%
40.6%
45.9%
47.4%
35.3%
40.8%
39.1%
24.9%
SD Penetration
44.1%
54.1%
54.7%
54.7%
51.9%
52.2%
21.7%
39.0%
46.7%
56.1%
Members/Branch
4,289
4,903
5,155
4,815
4,983
3,368
1,029
1,910
2,544
6,425
Employees/Thousand Mbrs Cash/Assets
2.58
2.70
2.82
2.94
2.98
2.94
2.66
2.93
3.14
2.64
0.87%
1.04%
0.93%
1.01%
1.04%
1.10%
1.20%
2.08%
1.58%
0.95%
Investment Yield
1.94%
1.90%
2.41%
4.01%
5.04%
4.20%
1.53%
1.67%
1.68%
1.93%
Loan Yield
6.11%
6.28%
6.23%
6.53%
6.46%
6.07%
7.60%
7.43%
6.67%
6.20%
Net Worth Ratio
9.99%
9.53%
9.52%
10.61%
11.08%
11.08%
16.46%
12.94%
10.74%
9.25%
Loan Distribution Loans/Assets
62.5%
63.1%
66.2%
70.3%
70.7%
69.0%
47.8%
54.9%
57.1%
64.1%
Credit Cards/Total Loans
6.1%
8.9%
8.8%
8.3%
7.9%
6.9%
4.5%
7.5%
5.8%
9.2%
Other Unsec Loans/Total Lns
4.5%
3.6%
3.4%
3.5%
3.5%
3.3%
13.9%
9.1%
5.4%
3.2%
Total Unsec Lns/Total Lns
10.6%
12.4%
12.2%
11.8%
11.3%
10.1%
18.4%
16.6%
11.2%
12.4%
New Automobile/Total Loans
11.5%
14.7%
16.9%
18.8%
21.7%
24.3%
25.5%
17.5%
14.9%
14.5%
Used Automobile/Total Loans
17.8%
16.6%
16.0%
16.0%
16.9%
18.4%
27.7%
25.9%
25.1%
15.5%
Total Car Loans/Total Loans
29.4%
31.3%
33.0%
34.8%
38.6%
42.7%
53.2%
43.4%
39.9%
30.0%
1st Mtg Loans/Total Lns
39.1%
37.4%
35.7%
33.7%
31.1%
28.2%
11.1%
23.1%
27.6%
38.9%
2nd Mtg Loans/Total Lns
15.7%
14.9%
15.2%
15.5%
14.9%
14.7%
10.8%
10.6%
15.3%
15.0%
Ttl Real Estate Lns/Total Lns
64.8%
52.3%
50.8%
49.2%
46.0%
42.9%
21.9%
33.8%
42.9%
53.8%
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