Alabama Profile Second Quarter 2011 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 second 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
May. The more it costs consumers to fill up their gas tanks, the less they have to spend on consumer items.
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 postwar recessions occurred from 1973 to 1975 and from 1981 to 1982 – each lasting 16 months.
5.) Emerging markets such as China (which buy our heavy equipment and luxury goods) are putting on the growth brakes over concerns about inflation. Their concerns have been exacerbated by the Fed’s money supply policy known as quantitative easing.
3.) Housing prices continue their downward spiral which makes more homeowners underwater and tamps down consumer spending. 4.) The European debt crisis! Various countries Portugal, Ireland, Italy, Greece, and Spain (PIIGS) are scaling back promises they have made to their citizens.
6.) State and local governments have been cutting about 25,000 jobs each month. This sector of the job market normally adds about 20,000 jobs per month and adding reductions by the Postal Service require private industry to add about 50,000 jobs per month for the economy to just stay even.
However, the recovery has been slower than in the past and a jobless one. 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 including 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 in such poor shape.
Gross Domestic Product 4 2 0 -2 -4 -6 -8 -10 Q2/08 Q4/08 Q2/09 Q4/09 Q2/10 Q4/10 Q2/11
The chart, on the right, which tracks the GDP, not only clearly shows the magnitude of the Great Recession, but illustrates the weakness in the economy during 2011.
Despite the weak recovery, improvement in credit union financial results is occurring. This follows two of the most difficult years ever for credit unions – 2008 and 2009.
There have been several worldwide and domestic economic events that have caused this slow growth patch. 1.) The earthquake and Tsunami in Japan created disruptions to the supplies of many items used in the world economy. 2.) The Arab Spring created upheavals in the oil markets. Gasoline, which was selling for a little over $3 a gallon at the end of 2010, had risen to more than $4 a gallon by
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Alabama Profile Second Quarter 2011 Alabama’s state revenues have been affected. It’s not just in Alabama, 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. Since 1978, states have only had negative revenue once, in 1983. Then the Great Recession became a game changer for state governments. There were five consecutive quarters of negative revenue. Despite increases during the past three quarters, total state revenues are still down about nine percent in 2010 when compared to 2008.
Most significant, was the further improvement in credit union earnings in the second quarter. Despite the continuing assessments from the National Credit Union Administration (NCUA), Alabama’s credit unions collectively had a Return on Average Assets (ROAA) of 83 basis points (bp). Although this is smaller than the 90 bp to 100 bp that many credit unions became accustomed to before the Great Recession, it exceeds the national average by 8 bp. The saving’s growth rate in 2011 at 7.3 percent in Alabama is more than 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 8 to 9 percent area for most of 2011 and 2012.
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 decline, 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 Federal Deposit Insurance Corporation (FDIC’s) already empty insurance fund.
There are several economic indicators that are important for Alabama credit unions to track; unemployment rate, home prices, delinquent loans-to-loans, and net chargeoffs. Alabama’s unemployment rate is bouncing around the national rate. Alabama’s unemployment rate, until 2009, was below the national average, and since that time has generally exceeded the national average. The chart below demonstrates how the spread of Alabama’s unemployment rate, when compared to the national rate, narrowed during 2010 but has been increasing during 2011.
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 $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
Alabama
0.13
0.08
0.03
The affect of these events is likely to have a chilling result in the real estate market for the next several years.
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Alabama Profile Second Quarter 2011 statistical estimation. For this reason, the HPI is described as a “constant quality” house price index.
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 slowing down. In Alabama, prices actually showed some slight gains in the fourth quarter of 2009. However, the past four 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 effect of these events is likely to have a chilling result in the real estate market for the next several years.
Real Estate Prices USA 0.15
Alabama
Georgia
Mississippi
0.1
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.
0.05 0 -0.05 -0.1 -0.15
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).
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 second quarter national and Alabama statistics. Additionally, other ratios as well as historical information for Alabama going back to 2007 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.
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 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
Delinquent loans-to-loans, nationally stabilized during 2010 and are now 24 bp lower than during the fourth quarter of 2009. Alabama credit unions have mirrored and exceeded the national drop, and have seen a reduction of 28 bp during the same period. These rates are high and must also be judged with net charge-offs, but these reductions are a welcome sign that we’ve turned the corner.
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Alabama Profile Second Quarter 2011 ROAA
Delinquent Loans to Loans USA
USA
Alabama
Alabama
0.01
0.02
0.008
0.015
0.006
0.01
0.004
0.005
0.002
0
0 Q2/09
Q2/09 Q4/09 Q2/10 Q4/10 Q2/11
The net charge-off rate nationally has declined by 26 bp since the fourth quarter of 2009. Alabama credit unions mirrored the national average and were able to reduce their net charge-offs by 24 bp during the same period. Alabama’s rate is still higher than we would like, but is headed in the right direction after two very tough years.
Q2/10
Q4/10
Q2/11
New and used car loans have shown negative growth for Alabama credit unions during the past seven quarters. During those seven quarters nationally, credit unions have also experienced negative growth in six of them. 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 Alabama can be attributed to loans being paid off and not replaced immediately by other car loans.
Net Charge-Offs USA
Q4/09
Alabama
0.015 0.01
Auto Loan Growth
0.005
USA
Alabama
0.0002
0 Q2/09 Q4/09 Q2/10 Q4/10 Q2/11
0 -0.0002
The asset quality improvements in delinquent loans to loans and net charge-offs to loans are impressive. This is especially true when you consider that loans (the denominator in these metrics) have dropped $256 million during this same time which (all other things being equal) would cause these numbers to rise!
-0.0004 Q2/09 Q4/09 Q2/10 Q4/10 Q2/11
Real estate lending has been one of the main drivers of Alabama’s credit union earnings for the past decade. Alabama credit unions have had positive growth and performed better than the national average during 10 of the most recent 12 quarters.
Alabama credit unions have been better than the national average in each of the past 13 quarters. Alabama credit unions collectively, despite continuing assessments by the NCUA, generated a healthy 83 bp ROAA.
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Alabama Profile Second Quarter 2011 Savings Growth
Real Estate Loan Growth USA
USA
Alabama
0.03
0.035
0.02
0.025
Alabama
0.03 0.02
0.01
0.015
0
0.01 0.005
-0.01 Q2/09
Q4/09
Q2/10
Q4/10
Q2/11
0 Q2/09
One of the very brightest spots for Alabama credit unions has been in Member Business Lending (MBL). During the past four years (since 2007), MBLs are up $182.1 million or 80.8 percent.
Q2/10
Q4/10
Q2/11
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, increasing volatility, as evidenced by triple digit gains or losses, has caused many investors to wait on the sidelines. At the close of the second quarter, the DJIA was 12,414.
Membership has been up in 10 of the last 13 quarters. Alabama credit unions’ membership growth has exceeded the national results so far in 2011.
Membership Growth USA
Q4/09
Alabama
0.02 0.01
To access 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.
0 -0.01 -0.02 Q2/09
Q4/09
Q2/10
Q4/10
Q2/11
www.lscu.coop Alabama credit unions, despite high unemployment and a very weak economy, saw positive savings growth of 7.3 percent during 2011 which more than doubled the national rate. Alabama credit unions have had larger savings growth rates or smaller negative numbers than the national numbers for 10 of the past 12 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.
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Alabama Profile Second Quarter 2011 USA Demographic Information
June 11
Alabama Credit Unions June 11
2010
2009
Alabama CU Asset Groups
2008
2007
<$6.3
$6.3-19
$19-80
>$80
Number of CUs
7,386
126
130
134
140
148
33
32
31
30
Average Assets ($mil)
129.3
129.6
117.2
107.9
93.2
81.9
3.3
12.4
41.8
484.1
Total Assets ($mil)
954,758
16,326
15,239
14,455
13,052
12,122
110
397
1,297
14,523
Total Loans ($mil)
571,499
7,460
7,641
7,716
7,324
6,884
60
211
671
6,519
Total Savings ($mil)
823,156
14,328
13,350
12,650
11,278
10,447
92
330
1,129
12,778
92,254
1,765
1,749
1,783
1,721
1,679
26
67
176
1,496
FT Employees
223,660
4,122
4,114
4,099
4,161
3,984
55
155
444
3,468
PT Employees
31,508
416
411
412
446
472
29
24
44
319
Total Members (thous)
Growth Rates Total Assets
3.0%
7.1%
5.4%
10.7%
7.7%
7.5%
Total Loans
-0.2%
-2.4%
-1.0%
5.4%
6.4%
5.5%
These growth rates are from the
Total Savings
3.2%
7.3%
5.5%
12.2%
8.0%
6.9%
previous December's call report data.
Total Members
0.5%
0.9%
-1.9%
3.6%
2.5%
2.7%
FT Employees
0.2%
0.2%
0.4%
-1.5%
4.4%
5.5%
Earnings (bp) Yield on Total Assets -Dividend/Interest Cost +Fee and Other Income
4.65
4.37
4.56
5.95
6.41
6.04
5.72
4.81
4.64
4.33
-0.99
-1.13
-1.45
-2.63
-3.09
-2.65
-1.00
-1.00
-1.09
-1.14
0.70
0.87
1.01
1.23
1.18
1.16
0.57
1.20
1.17
0.83
-Operating Expense
-3.10
-3.00
-3.11
-3.33
-3.35
-3.29
-4.24
-4.07
-3.93
-2.88
-Loss Provisions
-0.51
-0.28
-0.45
-0.47
-0.36
-0.29
-0.45
-0.37
-0.31
-0.27
0.75
0.83
0.56
0.75
0.79
0.97
0.60
0.57
0.48
0.87
Delinquent Loans/Loans
1.59%
1.24%
1.40%
1.52%
1.21%
1.08%
3.22%
2.03%
1.46%
1.18%
Net Charge Offs/Loans
0.95%
0.70%
0.83%
0.94%
0.71%
0.52%
1.07%
0.81%
0.48%
0.68%
=Net Income (ROA) Asset Quality
Other Ratios (%) Avg Shares/Member
$
8,923
$
8,120
$
7,633
$
6,553
$
6,223
$
5,978
$ 3,594
$ 4,926
$ 6,420
$
8,540
Avg Loan Bal/Member
$
6,195
$
4,228
$
4,369
$
4,255
$
4,100
$
3,992
$ 2,323
$ 3,149
$ 3,818
$
4,357
Travel & Conf/Thous Assets
28.3%
26.1%
27.5%
39.6%
41.0%
41.5%
27.8%
33.9%
49.9%
23.7%
SD Penetration
44.8%
43.7%
42.4%
41.3%
41.0%
38.6%
11.2%
25.8%
38.0%
45.7%
Members/Branch
4,305
4,262
4,214
4,002
3,923
3,892
779
1,715
2,344
5,604
2.60
2.45
2.47
2.55
2.51
2.46
2.70
2.50
2.65
2.42
0.87%
1.38%
1.37%
1.43%
1.21%
1.22%
0.80%
2.36%
1.92%
1.31%
Employees/Thousand Mbrs Cash/Assets Investment Yield
1.62%
1.84%
2.08%
3.74%
4.52%
4.09%
0.85%
1.11%
1.53%
1.88%
Loan Yield
5.84%
6.22%
6.40%
6.63%
6.81%
6.58%
9.41%
7.56%
6.94%
6.08%
10.16%
10.93%
11.11%
12.09%
12.27%
12.38%
15.93%
16.65%
12.37%
10.61%
Net Worth Ratio Loan Distribution Loans/Assets
59.9%
45.7%
50.1%
56.1%
56.8%
57.9%
54.2%
53.0%
51.8%
44.9%
Credit Cards/Total Loans
6.2%
6.0%
5.8%
5.8%
6.0%
5.6%
2.1%
1.0%
2.9%
6.5%
Other Unsec Loans/Total Lns
4.3%
5.8%
5.9%
6.2%
6.5%
6.4%
19.6%
11.7%
9.3%
5.1%
Total Unsec Lns/Total Lns
10.6%
11.8%
11.7%
12.0%
12.4%
12.0%
21.7%
12.7%
12.2%
11.7%
New Automobile/Total Loans
10.5%
10.9%
12.9%
18.3%
19.9%
20.4%
17.6%
18.1%
11.9%
10.5%
Used Automobile/Total Loans
18.3%
27.6%
27.2%
24.7%
25.3%
27.0%
40.4%
32.5%
29.0%
27.1%
Total Car Loans/Total Loans
28.8%
38.5%
40.1%
43.0%
45.2%
47.4%
58.1%
50.5%
40.9%
37.7%
1st Mtg Loans/Total Lns
40.4%
36.0%
33.9%
31.0%
27.9%
26.6%
10.8%
23.3%
35.2%
36.7%
2nd Mtg Loans/Total Lns
14.8%
7.5%
8.3%
8.6%
8.9%
8.0%
2.3%
4.3%
5.2%
7.9%
Ttl Real Estate Lns/Total Lns
55.2%
43.5%
42.2%
39.6%
36.9%
34.6%
13.1%
27.6%
40.4%
44.6%
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