Alabama Profile Second 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
Net income before the separate National Credit Union Share Insurance Fund (NCUSIF) stabilization expenses actually rose from the first quarter to the second. ROA for the first half, after stabilization expenses was 42 bp. Although that pales in comparison to the 90 bp to 100 bp that many credit unions became accustomed to before the recession, it represents a marked improvement from the near zero earnings of the previous two years. The most significant contributor to the earnings improvement was another decline in the provision for loan loss expense, from 115 bp of assets for all of 2009 to 82 bp in the first quarter and 73 in the second quarter.
In the 2009 Q4 profile, it looked like the Great Recession was over. This statement has now been officially confirmed by the National Bureau of Economic Research (NBER). The longest-lasting recession the U.S. has experienced since World War II ended in June 2009, according to the NBER, a panel of academic economists that dates the beginning and end 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, the bureau said.
The only real surprise in the data was the slowdown in savings growth in the second quarter. Savings rose by only 1.6 percent on an annual basis in the second 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 because they are depressed 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 which keeps the unemployment rate bumping in the nine to 10-percent area for most of 2010.
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 Alabama’s credit unions to track; unemployment rate, home prices, delinquent loans to 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.
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 second quarter. Although net income, or return on assets (ROA), was down slightly during the quarter, to 38 basis points (bp) of assets from 46 in the first, the drop was due to the corporate stabilization assessment of 13.4 bp of insured savings levied during the quarter.
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