Florida 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 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. 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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Florida Profile Second Quarter 2010 In real estate, two events will pose a drag on real estate recovery going forward:
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 lay-offs. This has caused Florida’s unemployment rate, which until 2007 was below the national average, to exceed the national average. The chart below demonstrates how the spread of Florida’s unemployment rate, when compared to the national rate, has decreased from the first quarter’s spread of 2.6 percent to the second quarters spread of 1.9 percent.
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
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 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 likely will struggle with revenue at least until 2012 and it might be 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 state's population growth will pick up when the economy improves, although probably at a lower level. 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 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
Florida
13.0% 11.0% 9.0%
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
7.0% 5.0% 10
10 1/
2/ Q
09 Q
09
4/ Q
09
3/ Q
09
2/ Q
08
1/ Q
4/ Q
3/ Q
Q
2/
08
08
3.0%
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Florida Profile Second Quarter 2010 After seven consecutive quarters of growth in delinquent loans-to-loans, the national rate finally showed a drop of six basis points (bp) in the first quarter and followed that with another drop of three bp in the second. Florida’s credit unions echoed the national drop by going down by nine bp in the first quarter and six bp in the second. These rates are still too high and must also be judged with net charge offs, but these reductions after many quarters of steady increases are a welcome sign that the corner may have been turned.
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. 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. is dramatically slowing 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 reentering the market, we are unlikely to see rapid improvement in the real estate arena. The worst is behind us, but unfortunately we still have not found the bottom of the real estate market. California has now had two consecutive quarters of very small (but positive) price appreciation while housing prices nationally, in Florida, and in Arizona, continues to fall but at an increasingly slower rate.
Delinquent Loans to Loans USA
3.00% 2.00% 1.00% 0.00% Q2/08
Florida
California
Q4/08
Q2/09
Q4/09
Q2/10
Nationally, after seven consecutive quarters of increases, the net charge-off rate declined but it was only by 1 bp in the first quarter and remained the same in the second. Florida’s credit unions, after eight consecutive quarters of increases, saw the net chargeoff rate decrease by three bp. Although this is a very small decrease, at least it is 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%
Net Charge-Offs -1
-3
-1
-3
-1
-3
-1
-3
-1
-3
USA
10
09
09
08
08
07
07
06
06
-30.00%
05
05
-1
-20.00%
Florida
2.50% 2.00% 1.50%
The following seven graphs have been developed from downloading and analyzing current and historical Call Report Data from the NCUA. The last page of this profile contains second quarter national and Florida statistics and ratios as well as historical information for Florida going back to 2006. There is also a breakdown into four assetsize ranges so you can review your credit union’s performance compared with your Florida peers.
1.00% 0.50% 0.00% Q2/08
3
Q4/08
Q2/09
Q4/09
Q2/10
Florida Profile Second 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 five of the past six quarters.
Florida’s credit unions have been below the national average in each of the past nine quarters and have had negative earnings as a group since the second quarter of 2008. Nationally, credit unions ROAA declined six bp from the previous quarter. Florida’s credit unions collectively had no change in their ROAA despite the 13.4 bp. Although the ROAA is still negative, the trend is definitely in the right direction.
Much of the recent flatness 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
Real Estate Loan Growth
USA
Florida
USA
0.50%
Florida
2.00% 1.50% 1.00% 0.50% 0.00% -0.50% -1.00% -1.50%
0.00% -0.50% -1.00% -1.50% -2.00% Q4/08 Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10
Q4/08
Q2/09
Q4/09
Q2/10
Membership has been up in five of the last eight quarters. Florida’s credit unions collectively grew at a faster rate than the national numbers in the second quarter after being slower than the national average the previous seven quarters.
New and used car loans have shown negative growth for Florida's credit unions during the past nine quarters. During those nine 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.
Membership Growth USA
Florida
1.00% 0.50%
Auto Loan Growth USA
0.00%
Florida -0.50%
0.010% 0.000% -0.010% -0.020% -0.030% -0.040% -0.050%
-1.00% Q3/08
Q4/08
Q2/09
Q4/09
Q2/10
4
Q1/09
Q3/09
Q1/10
Florida Profile Second Quarter 2010 Florida’s credit unions, because of high levels of unemployment and a very weak economy, saw negative savings growth in the second quarter. Florida’s credit unions have had smaller savings growth rates or more negative numbers than the national numbers for the past ten 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.
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. 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.
Savings Growth USA
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.
Florida
7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00%
www.lscu.coop Q4/08 Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10
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Florida Profile Second Quarter 2010 USA Demographic Information
June 10
Florida Credit Unions 2009
Florida CU Asset Groups <$13Mil
$13-40
$40-150
Number of CUs
7,600
178
179
185
195
206
43
39
53
43
Average Assets ($mil)
120.5
239.4
238.0
224.7
210.4
192.9
5.6
24.8
77.8
867.2
Total Assets ($mil)
916,068
42,619
42,595
41,575
41,026
39,737
240
966
4,124
37,289
Total Loans ($mil)
574,186
27,099
28,205
29,238
29,017
27,405
114
545
2,403
24,037
Total Savings ($mil)
788,617
36,873
36,744
34,937
35,044
33,866
198
830
3,599
32,245
91,748
4,587
4,562
4,550
4,550
4,532
46
142
529
3,871
FT Employees
223,340
12,038
12,349
12,832
13,014
12,722
108
401
1,624
9,905
PT Employees
31,361
1,053
1,013
1,091
1,079
1,160
33
53
117
850
Total Members (thous)
June 10
2008
2007
2006
>$150
Growth Rates Total Assets
2.1%
0.1%
2.5%
1.3%
3.2%
4.9%
Total Loans
-1.1%
-3.9%
-3.5%
0.8%
5.9%
9.0%
These growth rates are from the
Total Savings
3.3%
0.4%
5.2%
-0.3%
3.5%
3.9%
previous December's call report data.
Total Members
0.6%
0.5%
0.3%
0.0%
0.4%
1.1%
Earnings (bp) Yield on Total Assets
4.81
4.98
5.59
6.46
6.56
6.03
4.90
4.89
4.65
5.03
-Dividend/Interest Cost
-1.34
-1.22
-1.73
-2.77
-3.18
-2.53
-0.89
-1.00
-1.07
-1.24
+Fee and Other Income
0.76
1.10
1.10
1.20
1.16
1.13
0.87
1.24
1.42
1.06
-Operating Expense
-3.03
-3.35
-3.34
-3.55
-3.50
-3.40
-4.64
-4.55
-4.20
-3.22
-Loss Provisions
-0.80
-1.58
-1.85
-1.62
-0.62
-0.31
-0.85
-0.65
-1.23
-1.65
0.40
-0.07
-0.23
-0.28
0.42
0.92
-0.61
-0.07
-0.43
-0.02
Delinquent Loans/Loans
1.74%
2.97%
3.12%
2.12%
1.35%
0.58%
2.77%
1.97%
2.23%
3.07%
Net Charge Offs/Loans
1.17%
2.28%
2.14%
1.56%
0.62%
0.42%
1.10%
1.14%
2.03%
2.34%
=Net Income (ROA) Asset Quality
Other Ratios (%) Avg Shares/Member
$
8,596
$
8,039
$
8,054
$
7,678
$
7,702
$
7,473
$ 4,319
$ 5,865
$ 6,806
$
Avg Loan Bal/Member
$
6,258
$
5,908
$
6,182
$
6,425
$
6,378
$
6,048
$ 2,483
$ 3,854
$ 4,543
$
8,331 6,210
Travel & Conf/Thous Assets
27.6%
27.5%
26.5%
40.6%
45.9%
47.4%
37.9%
47.1%
38.5%
25.7%
SD Penetration
43.9%
56.8%
54.7%
54.7%
51.9%
52.2%
21.7%
42.8%
46.6%
59.0%
Members/Branch
4,278
4,875
5,155
4,815
4,983
3,368
957
1,939
2,449
6,408
Employees/Thousand Mbrs Cash/Assets
2.61
2.74
2.82
2.94
2.98
2.94
2.71
3.02
3.18
2.67
0.85%
1.00%
0.93%
1.01%
1.04%
1.10%
1.18%
2.06%
1.53%
0.91%
Investment Yield
1.97%
1.93%
2.41%
4.01%
5.04%
4.20%
1.56%
1.67%
1.69%
1.97%
Loan Yield
6.13%
6.24%
6.23%
6.53%
6.46%
6.07%
7.60%
7.26%
6.62%
6.17%
Net Worth Ratio
9.91%
9.43%
9.52%
10.61%
11.08%
11.08%
16.63%
13.27%
10.61%
9.16%
Loan Distribution Loans/Assets
62.7%
63.6%
66.2%
70.3%
70.7%
69.0%
47.5%
56.5%
58.3%
64.5%
Credit Cards/Total Loans
6.1%
8.8%
8.8%
8.3%
7.9%
6.9%
4.3%
7.1%
5.5%
9.2%
Other Unsec Loans/Total Lns
4.4%
3.5%
3.4%
3.5%
3.5%
3.3%
13.7%
9.4%
5.5%
3.1%
Total Unsec Lns/Total Lns
10.5%
12.3%
12.2%
11.8%
11.3%
10.1%
18.0%
16.5%
11.0%
12.3%
New Automobile/Total Loans
12.0%
15.4%
16.9%
18.8%
21.7%
24.3%
27.0%
19.0%
15.3%
15.3%
Used Automobile/Total Loans
17.5%
16.4%
16.0%
16.0%
16.9%
18.4%
24.7%
26.0%
23.9%
15.4%
Total Car Loans/Total Loans
29.5%
31.8%
33.0%
34.8%
38.6%
42.7%
51.7%
45.0%
39.2%
30.7%
1st Mtg Loans/Total Lns
38.9%
36.9%
35.7%
33.7%
31.1%
28.2%
11.6%
21.5%
28.6%
38.3%
2nd Mtg Loans/Total Lns
15.9%
15.0%
15.2%
15.5%
14.9%
14.7%
11.7%
10.5%
15.5%
15.1%
Ttl Real Estate Lns/Total Lns
54.8%
51.9%
50.8%
49.2%
46.0%
42.9%
23.3%
32.0%
44.1%
53.3%
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